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================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington D.C. 20549

                               -----------------

                                   FORM 10-K

                               -----------------

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
               For the fiscal year ended December 31, 2001

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                        Commission File Number: 0-18805

                         ELECTRONICS FOR IMAGING, INC.
            (Exact name of registrant as specified in its charter)

                          Delaware                     94-3086355
              (State or other jurisdiction of       (I.R.S. Employer
               incorporation or organization)      Identification No.)

             303 Velocity Way, Foster City, CA            94404
          (Address of principal executive offices)     (Zip Code)

                                (650) 357-3500
             (Registrant's telephone number, including area code)


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<S>                                                         <C>
Securities registered pursuant to Section 12(b) of the Act:             None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value
                                                                  (Title of Class)
</TABLE>


Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes [X]    No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]

   The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 2002.


         Common Stock, $.01 par value:                 $843,968,598 **

   The number of shares outstanding of each of the registrant's classes of
common stock as of February 28, 2002.


            Common Stock, $.01 par value:                 54,126,970

                               -----------------

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 23, 2002
are incorporated by reference into Part III hereof.
--------
** Based upon the last trade price of the Common Stock reported on the Nasdaq
   National Market on February 28, 2002. Excludes approximately 10,374,720
   shares of common stock held by Directors, Officer and holders of 5% or more
   of the Registrant's outstanding Common Stock on December 31, 2001. Exclusion
   of shares held by any person should not be construed to indicate that such
   person possesses the power, direct or indirect, to direct or cause the
   direction of the management or policies of the Registrant, or that such
   person is controlled by or under common control with the Registrant.

================================================================================


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                                    PART I

   This Annual Report on Form 10-K includes certain registered trademarks and
trademarks of Electronics for Imaging, Inc. ("EFI or the Company") and others.
EFI, the EFI logo, Fiery, the Fiery logo, Fiery Driven, the Fiery Driven logo,
Fiery Driven and Design, ColorWise, RIP-While-Print, PowerPage, the PowerPage
logo, PowerBand, PowerSmooth, PSClone, PSView, EDOX, Mousitometer, Spot-On,
Spot-On and Design, Check Mate, Freedom of Press, Go Wide, Splash, Velocity and
Solitaire are registered trademarks of Electronics for Imaging, Inc. with the
U.S. Patent and Trademark Office, or certain other foreign jurisdictions. Fiery
Prints, Fiery ZX, Fiery LX, Fiery SI, Fiery XJ, Fiery XJe, Fiery XJ-W,
BookletMaker, Fiery Downloader, Fiery Scan, Fiery Spooler, Fiery FreeForm,
Fiery Link, Fiery Driver, PowerWise Architecture, RIPChips, WebTools,
WebSpooler, WebInstaller, WebStatus, Command Workstation, Continuous Print,
DocBuilder, EFICOLOR, EFICOLOR Works, FreeForm, Memory Multiplier, NetWise,
STARR Compression, EDOX Profile Manager, RIP Ahead, Instant Reprint, Document
Recovery, Sapphire, Opal, PrintMe, PrintMe Networks, Harmony and eBeam are
trademarks of Electronics for Imaging, Inc. All other terms and product names
may be registered trademarks or trademarks of their respective owners, and are
hereby acknowledged.

   Certain of the information contained in this Annual Report on Form 10-K,
including without limitation, statements made under this Part I, Item 1
"Business" and Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 7A," "Quantitative and
Qualitative Disclosures about Market Risk" which are not historical facts, may
include "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. When used herein, the words
"anticipate," "believe," "estimate," "expect," "intend," "will" and similar
expressions as they relate to the Company or its management are intended to
identify such statements as "forward-looking statements." Such statements
reflect the current views of the Company and its management with respect to
future events and are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, the Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. Important factors that
could cause the Company's actual results to differ materially from those
included in the forward-looking statements made herein include, without
limitation, those factors discussed in Item 1 "Business--Competition," in Item
7 "Management's Discussion and Results of Operations--Factors That Could
Adversely Affect Performance" and elsewhere in this Annual Report on Form 10-K
and in the Company's other filings with the Securities and Exchange Commission,
including the Company's most recent Quarterly Report on Form 10-Q. The Company
assumes no obligation to update these forward-looking statements to reflect
actual results or changes in factors or assumptions affecting such
forward-looking statements.


Item 1:  Business.

General

   EFI was founded in 1989 by Efraim Arazi. EFI designs and markets products
that support color and black-and-white printing on a variety of peripheral
devices. Its products incorporate hardware and software technologies that
transform digital copiers and printers from many leading copier manufacturers
into fast, high-quality networked printers. The Company's products include
stand-alone servers, which are connected to digital copiers and other
peripheral devices, and controllers, which are embedded in digital copiers and
desktop color laser printers. The Company sells its products primarily to
original equipment manufacturers ("OEM's") in North America, Europe and Japan.

   The Company was founded to develop innovative solutions to enable color
desktop publishing. In pursuit of this goal, the Company first developed the
Fiery line of color servers ("Fiery Color Servers") to enable in-house,
short-production run color printing, together with application and system
software to facilitate color correction and device-independent color. Fiery
Color Servers are sophisticated, stand-alone computers that enable digital

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copier machines to accept, process, and print digital images from personal
computers and computer networks. Historically, the Company primarily focused
its efforts on its stand-alone Fiery Color Servers that supported printing on
digital color copiers and, until 1999, substantially all of its revenue
resulted from the development and sale of these stand-alone products. Although
development and marketing of embedded solutions began in prior years, during
1999, the Company expanded its focus to include several additional embedded
solutions that support printing on a broader range of devices, including
digital black-and-white copiers and desktop color laser and inkjet printers
("Fiery Controllers" and, together with Fiery Color Servers, "Fiery Products").
In 1999, the Company also developed newer stand-alone Fiery Color Servers for
wide-format color inkjet printers and restructured its sales model by entering
into direct relationships with the manufacturers of such wide-format printers
rather than selling to sales distributors. During 1999, the Company expanded
its line of digital color servers through its merger with Management Graphics,
Inc. ("MGI") and its EDOX line of digital color servers ("EDOX Color Servers")
and introduced its first Internet appliance product, eBeam. In 2000, the
Company continued to develop Fiery and Edox Products as well as new software
applications for existing and new generations of a variety of new peripheral
devices, including the development of its Velocity software. During 2000, the
Company expanded its line of digital color servers through its acquisition of
Splash Technology Holdings, Inc. ("Splash") and its Splash line of digital
color servers ("Splash Color Servers" and together with Fiery Color Servers and
EDOX Color Servers, "EFI Color Servers").

   In 2001, the Company continued to develop Fiery, Splash and EDOX Products as
well as new software applications for existing and new generations of a variety
of new peripheral devices, including the development of its Fiery Graphics Arts
Package, new Velocity workflow software, new document security software and
Variable Data Printing solutions. See "Growth and Expansion
Strategies--Proliferate and Expand Product Lines." Additionally, in 2001, the
Company introduced its Internet printing solution--PrintMe Networks. See
"Growth and Expansion Strategies--Develop and Expand PrintMe Networks."

   In the past, the Company has achieved significant growth in net revenue and
operating income before adjustments for purchase accounting. The Company's
growth is contingent on a number of factors, however, many of which are outside
its control. These factors include the overall rate of growth in the color
server market and the impact of economic conditions on the demand for the
Company's products. Due to these and other factors (including an increasingly
higher base from which to grow and general domestic and global economic
conditions), the Company's historical growth rate has been difficult to sustain
and will be difficult to exceed in the future. The United States recession and
global economic slowdown has resulted in a slowdown in capital spending on
color printers and copiers in both the professional printing and office markets
which has had a significant negative impact on the Company's growth rate.
Accordingly, the Company believes that period-to-period comparisons of its
financial results should not be relied upon as an indication of future
performance.

The Electronics for Imaging Solution

   The Company develops products with a wide range of price and performance
levels designed to make high-quality color printing in short-run productions
easier and more accessible to the broader market. The Company believes that
consumers generally prefer color as evidenced by the migration of photographs,
motion pictures and television from black-and-white to color. In the personal
computer field, EFI believes this preference is shown by the migration of PDAs
to color and the almost exclusive use of color monitors with color-oriented
graphical user interfaces, application software and Internet content. In each
of these cases, once the enabling technology developed sufficiently, consumer
adoption of color quickly followed. The Company believes that consumers prefer
color in documents created through desktop publishing. Until recently, however,
the technology was not available to do this in a high quality, quick and
cost-effective manner due to the complexity of accurate color reproduction.
EFI's Color Servers permit users of digital color copiers to transmit and
convert digital data from a computer to a color copier so that the color copier
can print high-quality color documents easily, quickly and cost-effectively. As
a result, EFI's Color Servers transform digital color copiers into fast,
high-quality, networked color printers.

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   The Company also believes that the black-and-white copier market is
migrating toward the development and use of digital black-and-white copiers.
Thus, in addition to EFI Color Servers for digital color copiers, the Company
has leveraged its technology to develop and manufacture other products that
support both color and black-and-white printing. These products include: (i)
Fiery servers for digital black-and-white copiers; (ii) Fiery Color Servers for
wide-format inkjet printers; and (iii) embedded Fiery Controllers for digital
black-and-white copiers and desktop color laser printers. See "Products and
Technology."

Growth and Expansion Strategies

   The Company's overall objective is to continue to introduce new generations
of controller products, new software applications, and other new product lines.
With respect to its current products, the Company's primary goal is to provide
a range of processing and printing solutions that address broad sections of the
color printing market and to continue to leverage its technology to enable
digital black-and-white printing on additional peripheral devices including
digital black-and-white copiers and multi-function devices. The Company's
strategy to accomplish these goals consists of five key elements.

  Proliferate and Expand Product Lines

   The Company intends to continue to develop new products that are scalable
and offer a broad range of features and performance when connected to, or
integrated with, digital color and black-and-white copiers, as well as desktop
color laser printers. Historically, the Company sold products that supported
digital color copiers. In 1996 the Company expanded its line of color servers
to drive a wide range of output devices including desktop color laser printers
and wide-format color inkjet printers with poster-size output. In 1997, the
Company further expanded the use of its technology, shipping its first products
that supported black-and-white printing systems and copiers. In 1998, the
Company introduced its next generation of products based upon EFI's Fiery ZX
and Fiery X2 platforms, in 1999, the Company introduced its next generation of
products based upon EFI's Fiery Z4 and Fiery X4 platforms and in 2000, the
Company again introduced its next generation of products based upon EFI's new
Fiery X3 platform. In 2000, the Company also introduced the EDOX 2000 Document
Server, an upgrade to the EDOX Color Servers. In 2001, the Company again
introduced its next generation of products based upon EFI's Fiery Z5 and Z18
platforms; the Fiery Z18 platform includes EFI's latest technology innovations,
including ColorWise 3.0, EFI's next generation of DocBuilder Pro and a Variable
Data Printing Solution. By utilizing the advantages of these new platforms, the
Company intends to continue to develop new products. The Company also intends
to continue to develop new software applications that advance the performance
and usability of its servers and embedded controllers. In 2000, the Company
developed a new line of software designed to maximize workflow efficiencies
which includes VelocityBalance(TM), VelocityBuild(TM), VelocityEstimate(TM) and
VelocityScan(TM), as well as Harmony Software Developers Kit which enables
users to develop custom applications that maximize the power, speed and
throughput of copiers and printers powered by Fiery technology. In 2001, the
Company developed VelocityBalance(TM) 2.0 which provides a number of new
functionalities including, Dynamic PPD technology. In 2001, the Company also
developed new software aimed at the graphics arts professional including, the
Fiery Graphics Arts Package(TM) and the EFI Color Profiler Kit(TM), document
security software, Advanced Secure Print Module(TM) as well as variable data
printing solutions. See "Products and Technology--EFI Technology." We expect to
continue developing new software applications.

   The Company also plans to continue to expand its product line to include
Internet appliance products. In November, 1999, the Company introduced eBeam.
eBeam converts a conventional whiteboard into a digital workspace, allowing
users to capture whiteboard meeting-notes and diagrams in real time on their
personal computers. Words and images can be viewed, edited and shared across
the world using a standard web browser. In May, 2000, the Company introduced
its second generation eBeam product and in 2001, the Company introduced its
third generation of eBeam software. In 2001, the Company also introduced eBeam
System 3(TM), the next generation of eBeam hardware which is believed to be the
smallest digital whiteboard solution on the market and the eBeam ImagePort(TM)
accessory, a whiteboard system that allows data to be beamed to a Palm(TM)
handheld computer. In 2001, the Company also formed alliances with Interlink
Electronics, Inc. and 3M to

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develop new whiteboard products and office presentation systems. Currently,
eBeam is being sold through resellers and distributors, as well as directly to
consumers via the Web and a toll-free number.

  Develop and Expand PrintMe Networks

   In October, 2001, the Company announced PrintMe Networks, a complete
Internet printing solution that enables remote printing without requiring print
drivers, cables or complex setup. PrintMe Networks allows people to access and
print their e-mail messages, Internet content and other documents at any time,
anywhere, from any device, to any printer connected to the Internet. The
Company also announced, along with other industry leaders such as Adobe Systems
Incorporated, Xerox, IBM, Canon, Minolta, Toshiba, Sharp, Palm, Sir Speedy,
Office Max, STSN and Yahoo! plans to provide the technologies and channels
necessary to make this new technology widely available. The Company believes
that PrintMe Networks expands the scope and sophistication of its products and
will help it gain access to new markets.

  Develop and Expand Relationships with Key Industry Participants

   The Company has established relationships with leading color printer
industry companies such as Canon, Danka Business Systems, Epson, Fuji-Xerox,
Hewlett-Packard, Ikon Office Solutions, Konica, Minolta, Oce, Ricoh, Sharp,
Toshiba, and Xerox (collectively, the "Strategic Partners" or "OEM partners").
EFI seeks to expand its relationships with its Strategic Partners in pursuit of
the goal of offering Fiery, EDOX and Splash products for additional digital
color and black-and-white devices produced by its Strategic Partners. The
Company also seeks to establish relationships with other digital copier and
printer companies for the distribution of Fiery, EDOX and Splash products with
their copiers and printers.

  Establish Enterprise Coherence

   In its development of new products and platforms, EFI seeks to establish
coherence across its entire product line by designing products that provide a
consistent "look and feel" to the end-user. EFI believes enterprise coherence
should create higher productivity levels as a result of shortened learning
curves. Additionally, enterprise coherence should lower the total cost of
ownership by providing one source for sales, support and training. The Company
believes that its effort to achieve enterprise coherence will continue to
engender goodwill among its Strategic Partners and the end-users of its
products and assist in the development of new strategic relationships and
markets for the Company.

  Leverage Technology Expertise to Expand the Scope of Products and Markets

   The Company has assembled an experienced team of technical personnel with
backgrounds in color reproduction, electronic pre-press, image processing,
networking, and software and hardware engineering. By applying its expertise in
these areas, the Company expects to continue to expand the scope and
sophistication of its products and gain access to new markets.

Products and Technology

   The Company is a leader in enabling networked printing solutions. EFI's
technology allows copiers, printers and digital presses to be shared across
work groups, the enterprise and the Internet. The Company develops products
with a wide range of price and performance levels designed to make
high-quality, short-run color and black and white digital printing easier and
more accessible to the broader market. The Company has a model for almost every
major digital printing technology today, including:

  .   desktop color laser printers,

  .   high-end desktop ink jet printers,

  .   wide-format printers,

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  .   mid-range color copiers,

  .   mid-range digital black and white copiers,

  .   production color copiers and

  .   high-speed digital presses.

   Thus, we believe the Company's products are attractive to a variety of end
users including, multimedia authors, advertising agencies, print-for-pay
businesses, graphic designers, pre-press providers and small to large
businesses. The Company currently has two main product lines that support color
and black-and-white printing: (i) stand-alone servers which are connected to
digital copiers and other peripheral devices and (ii) controllers which are
embedded in digital copiers and desktop laser printers. All of EFI's products
incorporate EFI's proprietary software and hardware features.

  EFI Technology

   From its inception, EFI has invested heavily in research and development.
EFI has focused on developing technologies that could be implemented in a
variety of products. Examples of such technologies include Fiery DocBuilder,
which enables electronic collation, reverse order printing, job merging and
editing, and Fiery WebTools which enables print job management from different
computer platforms via a Java(TM)-enabled Web Browser. Fiery WebTools also
provides remote access to the print queue so an administrator can obtain
instant updates on job status and error messages, allowing for a timely
response to problems, and provides job accounting and job security capabilities
which are essential in network printing environments. Other examples of EFI
technologies include, (i)RIP-While-Print which allows one page to be printed
while subsequent pages are simultaneously processed; (ii) Continuous Print
which allows processed pages to be stored in memory before printing,
eliminating the need for the copier or printer to cycle down between unique
pages; (iii) NetWise 3.0, EFI's third generation networking architecture which
provides enhanced programmability that helps users build customized printing
solutions and provides extensive Internet-based functionality; (iv) Fiery
Driver which is a unified printing interface that simplifies the printing
process; (v) Fiery Link which provides users with information on print job
status and connected Fierys allowing users to monitor the status of any print
job, its position in the queue, and general information on the Fiery and paper
and toner levels from any workstation; and (vi) ECT compression, an improved
and more advanced compression scheme than EFI's previous STARR compression
technologies, which offers definite compression ratios and virtually lossless
image quality. Compression software decreases the amount of memory necessary to
store documents during processing and enables faster printing of documents. In
addition to such software innovations, EFI custom designs its hardware to
increase productivity. For example, EFI's custom designed RIPChips, application
specific integrated circuit ("ASIC") chips, decrease overall print times by
off-loading data movement from the microprocessor. The Company continues to
refine these printing technologies.

   In 2001, the Company continued its efforts to improve its products'
performance, features and ease of use. Software features developed by the
Company during 2001 include: (i) Colorwise 3.0, EFI's third generation color
management system which provides greater image quality and calibration accuracy
(ii) the next generation DocBuilder Pro(TM) which provides users with enhanced
workflow; (iii) the EFI Color Profiler(TM) kit which includes profile creation
software and an integrated EFI Spectrometer(TM), a hand-held optical color
measurement device that is designed to provide the ability to quickly and
accurately measure the color of any paper or other material; and (iv) the Fiery
Graphics Arts Package(TM) designed to address the needs of graphic arts
professionals by emphasizing increased workflow and productivity while
stringently adhering to industry color standards.

  Stand-alone Servers

   EFI Color Servers permit users of digital color copiers to transmit and
convert digital data from a computer to a color copier so that the color copier
can print color documents easily, quickly and cost-effectively. As a

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result, EFI Color Servers transform digital color copiers into fast,
high-quality networked color printers. In addition to EFI Color Servers for
digital color copiers, the Company has leveraged its technology to develop and
manufacture other products that support both color and black-and-white
printing. These products include Fiery servers for digital black-and-white
copiers and Fiery Color Servers for wide-format inkjet printers. EDOX Color
Servers and Splash Color Servers also support wide-format inkjet printers.

   Since the introduction of the first Fiery Color Server in 1991, the Company
has expanded its product line. In 1995, the Company introduced its
third-generation platform, the Fiery XJ. During 1996, the Company shifted the
majority of its product line to the XJ platform and later refined these
products by transitioning to a variation of the XJ platform known as the Fiery
XJ+. During 1998, the Company introduced two new platforms, the Fiery ZX and
the Fiery X2, which included software features developed or further refined by
the Company during 1998, and began migrating its product line to these
platforms. During 1999, the Company again introduced two new server platforms,
the Fiery Z4 and the Fiery X4, which incorporated several new technologies or
enhancements from EFI including, ColorWise2.0, NetWise 2.0, the PowerWise
Architecture and the next generation DocBuilder Pro(TM). The Fiery Z4 is
approximately twice as fast as its predecessor, the Fiery ZX, is optimized for
high-speed processing and photographic-quality color and is designed for
demanding graphic arts, print-for-pay and advertising agency environments. The
Fiery X4 is approximately three times as fast as its predecessor, the Fiery X2,
and is designed for users in a corporate environment. During 2000 the Company
introduced one new platform, the X3, which includes features developed or
further refined by the Company during 2000. The X3 is approximately seven times
faster than its predecessor the Fiery X2. During 2001, the Company again
focused its development efforts on improvements to its products' performance,
features and ease of use and introduced two new platforms, the Fiery Z5 and the
Fiery Z18. The Fiery Z5 for mid-range color copiers and the Fiery Z18 for
high-end printers provide the power, precision, and advanced workflow controls
needed to maximize both print quality and productivity for the print-for-pay,
CRD, commercial printer and graphic arts markets. Each platform features a
major re-architecture--enabling improvements in printing speed--and is designed
to run new EFI software featuring specialized tools for graphic arts
professionals. In 2001, the Company shipped stand-alone EFI Color Servers for
use with color copiers, color inkjet printers and wide-format color printers
distributed by companies such as Canon, Epson, Fuji-Xerox, Minolta, Oce, Ricoh,
Toshiba, Ikon Office Solutions, Sharp and Xerox. In 2001, the Company also
shipped Fiery servers for use with digital black-and-white copiers distributed
by Canon, Danka, Konica, Minolta, Oce and Sharp.

  Controllers

   Unlike our Fiery, EDOX and Splash servers, which are sold as stand-alone
products to be connected to copiers, Fiery Controllers are embedded inside
copiers and desktop printers. Fiery Controllers allow users to print documents
directly from their computers to the digital copier. Fiery Controllers support
both color and black-and-white printing on desktop color laser printers, color
multi-function devices and digital black-and-white copiers. Because the Company
believes that the Fiery name and trademark, including the trademark "Fiery
Driven," are associated with substantial goodwill and recognition in the
marketplace, the Company seeks to have the "Fiery Driven" logo placed on
printing solutions that include an embedded Fiery Controller. In 2001, the
Company shipped Fiery Controllers embedded in color and digital black-and-white
copiers and desktop color printers distributed by companies such as Canon,
Fuji-Xerox, Hewlett Packard, Konica, Minolta, Ricoh and Xerox.

Significant Relationships

   The Company has established, and continues to try to build and expand
relationships with its Strategic Partners and other leading copier and printer
companies, in order to benefit from the OEMs' products, distribution channels
and marketing resources. The OEMs include domestic and international
manufacturers, distributors and sellers of digital copiers (both color and
black-and-white), wide-format printers and desktop color printers. The Company
works closely with the OEMs with the aim of developing solutions that
incorporate leading technology and that optimally work in conjunction with such
companies' products. OEMs that the

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Company sold products to in 2001 include, among others, Canon, Epson,
Fuji-Xerox, Hewlett-Packard, Ikon Office Solutions, Konica, Minolta, Oce,
Ricoh, Sharp, Toshiba and Xerox. Together, sales to Canon, Xerox, Minolta and
Ricoh accounted for approximately 79% of the Company's 2001 revenue, with sales
to each of these customers accounting for more than 10% of the Company's
revenue.

   In 2001, the Company announced two alliances to further the development of
eBeam: an alliance with Interlink Electronics, Inc. to develop a new family of
business communications whiteboard products and an alliance with 3M Visual
Systems Division to develop office presentation systems.

   The Company customarily enters into development and distribution agreements
with its OEM customers. These agreements can be terminated under a range of
circumstances, and often upon relatively short notice. The circumstances under
which an agreement can be terminated vary from agreement to agreement and there
can be no assurance that the Company's OEM customers will continue to purchase
products from the Company in the future, despite such agreements. The Company
recognizes the importance of, and works hard to maintain, its relationships
with its customers. However, the Company's relationships with its customers is
affected by a number of factors including, among others: competition from other
suppliers, competition from internal development efforts by the customers
themselves (including the OEMs), and changes in general economic, competitive
or market conditions (such as changes in demand for the Company's or the OEM's
products, or fluctuations in currency exchange rates). There can be no
assurance that the Company will continue to maintain or build the relationships
it has developed to date.

   In addition to its development and sales relationships with the OEMs, in
order to increase the distribution and presence of EFI Color Servers connected
to both color and black-and-white copiers and wide-format printing devices, the
Company has developed strategic relationships with well-known print-for-pay
companies, including Kinko's, AlphaGraphics, the CopyMax operations of office
products superstore OfficeMax, the American Speedy group of franchised printing
centers (including Allegra Print and Imaging, American Speedy, Speedy Printer,
Zippy Print and Quik Print), MultiCopy, Inc. and the SAMPA Corporation,
franchiser of Signal Graphics Printing Centers. Several of these print-for-pay
companies, including, American Speedy, OfficeMax, MultiCopy, Inc. and SAMPA
Corporation, have entered into worldwide strategic alliances with the Company
whereby they agreed to continue standardization efforts on EFI's Fiery Color
Servers with respect to their printing services.

   The Company also has a continuing relationship pursuant to a license
agreement with Adobe and licenses PostScript(R) software from Adobe for use in
many Fiery Products. This relationship is important because each Fiery Product
requires page description language software in order to operate. Adobe's
PostScript(R) software is widely used to manage the geometry, shape and
typography of hard copy documents and Adobe is a leader in providing page
description software.

Distribution and Marketing

   The Company's primary distribution method for its Fiery and Splash servers
has been to sell the Fiery and Splash servers to its OEMs. The Company's OEMs
in turn sell these products to distributors and end-users for use with the
OEMs' copiers or printers as part of an integrated printing system. For Fiery
Controllers, the Company's primary distribution method has been to sell the
products to the OEMs that embed the products into their copiers and printers.
The Company's primary distribution method for its EDOX servers has been to sell
the EDOX servers directly to its distributors. There can be no assurance that
the Company will continue to successfully distribute its products through these
channels. Any interruption of the distribution methods will negatively impact
the Company in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors That Could Adversely
Affect Performance--Reliance on OEM Resellers; Risks Associated With
Significant OEM Group Concentration."

   The Company promotes all of its products through public relations, direct
mail, advertising, promotional material, trade shows and ongoing customer
communication programs.

                                      8


<PAGE>

Research and Development

   Research and development costs for 2001, 2000, and 1999 were $98.1 million,
$94.1 million, and $75.0 million, respectively. As of December 31, 2001, 481 of
the Company's 917 full-time employees were involved in research and
development. The Company believes that development of new products and
enhancement of existing products are essential to its continued success, and
management intends to continue to devote substantial resources to research and
new product development. The Company expects to make significant expenditures
to support its research and development programs for the foreseeable future.

   The Company is developing products to support additional color and
black-and-white printing devices including desktop printers, high-end color
copiers, digital black-and-white copiers and multi-function devices. This
ongoing development work includes a multiprocessor architecture for high-end
systems and lower-cost designs for desktop color laser printers. The Company is
also developing new software applications designed to maximize workflow
efficiencies as well as new software applications designed to meet the needs of
the graphics arts professional. The Company is also developing Internet
printing solutions.

   The Company expects to enhance functionality of its Internet appliance
product eBeam. See "--Growth and Expansion Strategies--Proliferate and Expand
Product Lines". Substantial additional work and expense will be required to
complete the development of these projects. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors That Could
Adversely Affect Performance--Product Transitions."

Manufacturing

   The Company utilizes subcontractors to manufacture its products. These
subcontractors work closely with the Company to ensure low costs and high
quality in the manufacture of the Company's products. Subcontractors purchase
components needed for the Company's products from third parties. The Company is
totally reliant on the ability of its subcontractors to produce products sold
by the Company, and although the Company supervises its subcontractors, there
can be no assurance that such subcontractors will continue to perform for the
Company as well as they have in the past. Difficulties experienced by the
Company's subcontractors (such as interruptions in a subcontractor's ability to
make or ship the Company's products, quality assurance problems or the ongoing
business viability of a subcontractor) would adversely affect the Company's
operations.

   Certain components necessary for the manufacture of the Company's products,
including ASICs and certain other semiconductor components, are obtained from a
sole supplier or a limited group of suppliers. The purchase of certain of these
key components may involve significant lead times. Accordingly, in the event of
interruptions in the supply of these key components or unanticipated increases
in demand for the Company's products, the Company could be unable to
manufacture certain of its products in a quantity sufficient to meet customer
demand. There can be no assurance that such supply or manufacturing problems
would not adversely affect the Company's results of operations or financial
condition. In an attempt to mitigate these supply issues, the Company will
purchase components for later resale to the Company's subcontractors thus
increasing the Company's inventory balances and the risk associated with
inventory obsolescence.

Human Resources

   As of December 31, 2001, the Company employed 917 individuals. Of the 917
total employees, approximately 218 were in sales and marketing, 131 were in
management and administration, 87 were in manufacturing, and 481 were in
research and development. Of the total number of employees, the Company had
approximately 780 employees located in U.S. and Canadian offices, and 137
employees located in international offices including employees based in The
United Kingdom, The Netherlands, Germany, Japan, France, Italy, Finland, Spain,
Australia, Singapore, Brazil, Mexico, Sweden and Hong Kong. The Company's
employees are not represented by any collective bargaining organization and the
Company has never experienced a work stoppage. However, there can be no
assurance that collective bargaining, work stoppage or other employment related
issues will not arise.

                                      9


<PAGE>

Competition

   Competition in the Company's markets is intense and involves rapidly
changing technologies and frequent new product introductions. To maintain and
improve its competitive position, the Company must continue to develop and
introduce, on a timely and cost-effective basis, new products and features that
keep pace with the evolving needs of its customers. The principal competitive
factors affecting the markets for the Company's Fiery, EDOX and Splash products
include, among others, customer service and support, product reputation,
quality, performance, price and product features such as functionality,
scalability, ability to interface with OEM products and ease of use. The
Company believes it has generally competed effectively in the past against
product offerings of its competitors on the basis of such factors. However,
there can be no assurance that the Company will continue to be able to compete
effectively in the future based on these or any other competitive factors.

   The Company faces competition from its customers and other copier and
printer manufacturers that offer internally developed server products or that
incorporate internally developed embedded solutions or server features into
their copiers and printers, thereby eliminating the need for the Company's
products and limiting future opportunities for the Company. The Company also
competes directly with other independent manufacturers of color servers,
independent manufacturers of embedded solutions, copier manufacturers, printer
manufacturers and others. The Company also faces competition from wide-format
printer manufacturers that develop their own controllers and other companies
that develop controllers for wide-format printers. In addition, the Company
faces competition from manufacturers of desktop color laser printers which do
not utilize a controller (relying instead on host based processing of data) and
which offer increasing speed and color capability. The Company believes that it
competes effectively due to, among other things, its efforts to continually
advance its technology, name recognition, end-user loyalty, sizable installed
base, number of products supported and price. The Company expects that
competition in its markets will increase due to, among other factors, market
demand for higher performance products at lower prices, rapidly changing
technology and product offerings from competitors and customers. There can be
no assurance that the Company will be able to continue to advance its
technology and its products or to compete effectively against other companies'
product offerings, and any failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.

Intellectual Property Rights

   The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other contractual provisions
to establish, maintain and protect its intellectual property rights, all of
which afford only limited protection. As of December 31, 2001, the Company had
84 issued U.S. patents, 56 pending U.S. patent applications and various foreign
counterpart patents and applications. There can be no assurance that patents
will issue from these pending applications or from any future applications or
that, if issued, any claims allowed will be sufficiently broad to protect the
Company's technology. The Company's issued patents expire between May 2002 and
March 2020. Failure of the Company to obtain or maintain patent protection may
make it easier for the Company's competitors to offer equivalent or superior
technology. In addition, third parties may independently develop similar
technology without misappropriation of the Company's trade secrets or breach of
other proprietary rights. Any failure by the Company to take all necessary
steps to protect its trade secrets or other intellectual property rights and
failure to enforce these rights may have a material adverse effect on the
Company's ability to compete in its markets.

   The Company has registered certain trademarks, which include, among others,
its EFI, Fiery, Fiery and Design(R), Fiery Driven, Fiery Driven and Design,
ColorWise, EDOX, and RIP-While-Print trademarks, and has applied for
registration of certain additional trademarks. The Company will continue to
evaluate the registration of additional trademarks as appropriate. Any failure
by the Company to properly register or maintain its trademarks or to otherwise
take all necessary steps to protect its trademarks may diminish the value
associated with the Company's trademarks. The Company's products include
software sold pursuant to "shrink wrap" licenses that are not signed by the end
user and, therefore, may be unenforceable under the laws of certain

                                      10


<PAGE>

jurisdictions. In addition, the laws of some foreign countries, including
several in which the Company operates or sells its products, do not protect
intellectual property and proprietary rights to as great an extent as do the
laws of the United States.

   From time to time, litigation may be necessary to defend and enforce the
Company's proprietary rights. Such litigation, whether or not concluded
successfully for the Company, could involve significant expense and the
diversion of management's attention and other Company resources.

Risk Factors

   In addition to the above information, a discussion of factors that may
adversely affect the Company's future performance and financial results can be
found in Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operation.

Financial Information About Foreign and Domestic Operations and Export Sales

   See Note 10 of the Company's Notes to Consolidated Financial Statements. See
also Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors That Could Adversely Affect Performance--We face
risks from our international operations and from currency fluctuations."


I
tem 2:  Properties

   The Company's principal offices are located at 303 Velocity Way, Foster
City, California on approximately 35 acres of land which the Company owns. The
corporate headquarters facility, which includes approximately 295,000 square
feet, was completed in July, 1999 and is leased by the Company. Tthe Company
entered into an agreement in 1999 to lease additional facilities to be
constructed on the Foster City property. Construction of 163,000 square feet of
additional facilities was completed in December 2001. In addition to the Foster
City offices, the Company has leased facilities in Parsippany, New Jersey;
Minneapolis, Minnesota; Vancouver, Washington and Amsterdam, The Netherlands.
The Company also leases a number of domestic and international sales offices.
In January 2001 the Company purchased facilities with approximately 44,000
square feet in Minneapolis, Minnesota.

   The Company believes that its facilities, in general, are adequate for its
present and currently foreseeable future needs.


Item 3:  Legal Proceedings.

   On December 15, 1997, a shareholder class action lawsuit, entitled Steele,
et al. v. Electronics for Imaging, Inc., et al., No. CV 403099, was filed
against the Company and certain of its officers and directors in the California
Superior Court, San Mateo County (the "San Mateo Superior Court"). Five
virtually identical class action complaints were subsequently filed in the San
Mateo Superior Court. On December 31, 1997, a putative shareholder class action
entitled Smith v. Electronics for Imaging, Inc., et al., No. C97-4739 was filed
against the Company and certain of its officers and directors in the United
States District Court for the Northern District of California. The state court
class actions allege that the Company made false and misleading statements
concerning its business during a putative class period of April 10, 1997
through December 11, 1997 and allege violations of California Corporations Code
Sections 25400 and 25500 and Civil Code Sections 1709 and 1710. The federal
court class action complaint makes the same factual allegations, but alleges
violations of certain United States federal securities laws. The complaints do
not specify the damages sought. The Company believes that these lawsuits are
without merit and intends to contest them vigorously, but there can be no
assurance that if damages are ultimately awarded against the Company, the
litigation will not adversely affect the Company's results of operations.

                                      11


<PAGE>

   In January 1999, two class action complaints were filed, and subsequently
consolidated into one case, in the United States District Court for the
Northern District of California against Splash and certain of its officers. The
complaints allege that defendants made false and misleading statements about
Splash's business condition and prospects during a class period of January 7,
1997--October 13, 1998, and assert claims for violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. On August 28,
2001, the federal court judge granted the Company's motion to dismiss the
plaintiff's claim against Splash and certain of its officers. The plaintiffs
have filed a notice of appeal with the Ninth Circuit Court of Appeals. The
complaint seeks damages of an unspecified amount. The Company believes it has
meritorious defenses in this action and intends to defend it vigorously.
Failure by the Company to obtain a favorable resolution of the claims set forth
in these actions could have a material adverse affect on the Company's
business, results of operations and financial condition. Currently, the amount
of such material effect cannot be reasonably estimated.

   On August 31, 2000, after the announcement of the tender offer for Splash, a
shareholder class action lawsuit was filed against Splash and its directors for
violation of federal and state securities laws. The plaintiffs, Splash and the
Company agreed to enter into a settlement agreement that would resolve the
outstanding disputes and dismiss the case with prejudice. On November 30, 2001,
the Court approved the non-cash settlement and signed the Final Judgment and
Order of Dismissal. The Company and Splash deny any wrongdoing whatsoever, but
agreed to the settlement to eliminate the burden and expense of further
litigation.

   Over the past five years, Mr. Jan R. Coyle, an individual living in Nevada,
has repeatedly requested that the Company buy technology allegedly invented by
his company, Kolbet Labs. In December 2001, Mr. Coyle threatened to sue the
Company and all of its customers for infringing a purportedly soon to be issued
patent and for misappropriating his trade secrets. The Company believes that
Mr. Coyle's threats are without merit and that it has no liability under claims
threatened by Mr. Coyle. On December 11, 2001, the Company filed a declaratory
relief action in the United States District Court for the Northern District of
California, seeking a declaration from the court that the Company and its
customers have not breached any nondisclosure agreement with Mr. Coyle or
Kolbet Labs, and that it has not infringed any patent claims or misappropriated
any trade secrets belonging to Mr. Coyle or Kolbet Labs through its sale of
Fiery, Splash or EDOX print controllers. The Company also seeks an injunction
enjoining both Mr. Coyle and Kolbet Labs from bringing or threatening to bring
a lawsuit against the Company, its suppliers, vendors, customers and users of
its products for breach of contract and misappropriation of trade secrets.

   In addition, the Company is involved from time to time in litigation
relating to claims arising in the normal course of its business. The Company
believes that the ultimate resolution of such claims will not materially affect
the Company's business or financial condition. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors That Could Adversely Affect Performance--Infringement and
Potential Litigation."


Item 4:  Submission of Matters to a Vote of Security Holders.

   None.

                                      12


<PAGE>


                                    PART II


Item 5:  Market for Registrant's Common Equity and Related Stockholder Matters.

   The Company's common stock was first traded on the Nasdaq National Market
under the symbol EFII on October 2, 1992. The table below lists the high and
low closing sales price during each quarter the stock was traded in 2001 and
2000.


<TABLE>
<CAPTION>
                                    2001                        2000
                         --------------------------- ---------------------------
                           Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4
                         ------ ------ ------ ------ ------ ------ ------ ------
<S>                      <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
High.................... $28.31 $29.50 $29.04 $23.80 $65.13 $64.06 $29.42 $24.69
Low.....................  13.75  22.24  15.34  15.36  45.19  22.31  21.38  11.94
</TABLE>


   As of February 28, 2002, there were approximately 286 stockholders of
record. The Company has never paid cash dividends on its capital stock. The
Company currently anticipates that it will retain all available funds for its
business, and does not anticipate paying any cash dividends in the foreseeable
future.

                                      13


<PAGE>


Item 6:  Selected Financial Data.

   The following tables summarize selected consolidated financial data as of,
and for the five years in the period ended December 31, 2001. This information
should be read in conjunction with the audited consolidated financial
statements and related notes thereto.


<TABLE>
<CAPTION>
                                                   As of and for the years ended December 31,
                                                ------------------------------------------------
                                                  2001      2000      1999      1998      1997
                                                --------  --------  --------  --------  --------
                                                    (In thousands, except per share amounts)
<S>                                             <C>       <C>       <C>       <C>       <C>
Operations
Revenue........................................ $517,608  $588,449  $570,752  $446,999  $373,404
Cost of revenue................................  282,113   311,152   290,636   249,179   171,138
                                                --------  --------  --------  --------  --------
Gross profit...................................  235,495   277,297   280,116   197,820   202,266
                                                --------  --------  --------  --------  --------
Operating expenses
   Research and development....................   98,116    94,097    74,971    60,150    42,868
   Sales and marketing.........................   56,767    64,526    59,373    60,615    46,776
   General and administrative..................   25,456    24,784    18,403    16,637    13,578
   Amortization of goodwill and other
     acquisition--related charges *............   12,255    23,621        --        --     9,400
   Merger-related expense **...................       --        --     1,422        --        --
                                                --------  --------  --------  --------  --------
       Total operating expenses................  192,594   207,028   154,169   137,402   112,622
                                                --------  --------  --------  --------  --------
Income from operations.........................   42,901    70,269   125,947    60,418    89,644
                                                --------  --------  --------  --------  --------
Other income, net..............................   17,471    21,550    16,250     9,859    10,309
                                                --------  --------  --------  --------  --------
Income before income taxes.....................   60,372    91,819   142,197    70,277    99,953
Provision for income taxes.....................  (21,432)  (37,461)  (46,914)  (22,456)  (35,944)
                                                --------  --------  --------  --------  --------
Net income..................................... $ 38,940  $ 54,358  $ 95,283  $ 47,821  $ 64,009
                                                ========  ========  ========  ========  ========

Net income per basic common share ***.......... $   0.73  $   0.99  $   1.74  $   0.89  $   1.21
Net income per diluted common share ***........ $   0.71  $   0.97  $   1.67  $   0.87  $   1.13
Shares used in computing net income per basic
  common share ***.............................   53,468    54,649    54,853    53,507    52,831
Shares used in computing net income per diluted
  common share ***.............................   54,605    55,983    56,963    54,972    56,713

Financial Position
Cash and short-term investments................ $451,207  $353,603  $470,328  $328,732  $246,764
Working capital................................  438,020   389,917   487,591   355,361   293,972
Long term liabilities, less current portion....      331     3,140     3,467     4,142     4,267
Total assets...................................  702,987   654,390   656,075   484,191   395,949
Stockholders' equity........................... $606,567  $545,316  $551,187  $408,680  $346,727

Ratios and Benchmarks
Current ratio..................................      5.6       4.7       5.8       6.0       7.5
Inventory turns................................     15.5      13.2      20.5      11.6       8.3
Full-time employees............................      917       895       758       660       614
</TABLE>

--------
*  See Note 2 of notes to Consolidated Financial Statements.
** The Company incurred approximately $1.4 million of non-recurring expenses
   related to the merger with Management Graphics, Inc. in 1999.
*** See Note 1 of Notes to Consolidated Financial Statements.

                                      14


<PAGE>


Item 7:  Management's Discussion and Analysis of Financial Condition and
Results of Operations.

   The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and related notes thereto included in
this Annual Report on Form 10K.

   All assumptions, anticipations, expectations and forecasts contained herein
are forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here. For
a discussion of the factors that could impact the Company's results, readers
are referred to the section below entitled "Factors that Could Adversely Affect
Performance."

   The preparation of the consolidated financial statements which are the basis
of the following discussion and analysis requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. The
Company evaluates its estimates, including those related to bad debts,
inventories, intangible assets, income taxes, warranty obligations, purchase
commitments and contingencies. The estimates are based upon historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances at the time of the estimate, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

   The following are believed to be the critical accounting policies of the
Company:

  .   revenue recognition;

  .   estimating allowance for doubtful accounts inventory reserves and other
      allowances;

  .   accounting for income taxes;

  .   valuation of long-lived and intangible assets and goodwill;

  .   determining functional currencies for the purposes of consolidating our
      international operations; and

  .   accounting for the synthetic lease arrangement.

   Revenue recognition.  We derive our revenue from primarily two sources (i)
product revenue, which includes servers, controllers, chipsets and royalties,
and (ii) services and support revenue which includes consulting and development
fees. As described below, significant management judgments and estimates must
be made and used in connection with the revenue recognized in any accounting
period. Material differences may result in the amount and timing of our revenue
for any period if our management made different judgments or utilized different
estimates.

   We recognize revenue from the sale of servers, controllers and chipsets when
persuasive evidence of an arrangement exists, the product has been delivered,
the fee is fixed and determinable and collection of the resulting receivable is
reasonably assured. Delivery generally occurs when product is delivered to a
common carrier.

   At the time of the transaction, we assess whether the fee associated with
our revenue transactions is fixed and determinable and whether or not
collection is reasonably assured. We assess whether the fee is fixed and
determinable based on the payment terms associated with the transaction.

   We assess collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the
customer. We do not request collateral from our customers. If we determine that
collection of a fee is not reasonably assured, we defer the fee and recognize
revenue at the time collection becomes reasonably assured, which is generally
upon receipt of cash.

   For all sales, we use either a binding purchase order or signed contract as
evidence of an arrangement. Sales through some of our OEMs are evidenced by a
master agreement governing the relationship together with binding purchase
orders on a transaction by transaction basis.

                                      15


<PAGE>

   Our arrangements do not generally include acceptance clauses.

   We recognize revenue for consulting and development services ratably over
the contract term. Our consulting and development services are billed based on
hourly rates, and we recognize revenue as these services are performed. If
these services are related to product development, we recognize the entire fee
using the percentage of completion method. We estimate the percentage of
completion based on our estimate of the total costs estimated to complete the
project as a percentage of the costs incurred to date and the estimated costs
to complete.

   Allowance for doubtful accounts, inventory reserves and other
allowances.  The preparation of financial statements requires our management to
make estimates and assumptions that affect the reported amount of assets and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Specifically, management must make estimates of the
uncollectability of our accounts receivables. Management specifically analyzes
accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit-worthiness, current economic trends and changes in our customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts. Our accounts receivable balance was $54.0 million, net of allowance
for doubtful accounts and sales returns of $1.6 million as of December 31,
2001. Similarly, management must make estimates of potential future inventory
obsolesence and purchase commitments. Management analyzes current economic
trends, changes in customer demand and acceptance of our products when
evaluating the adequacy of allowances. Significant management judgments and
estimates must be made and used in connection with establishing the allowances
in any accounting period. Material differences may result in the amount and
timing of our revenue for any period if management made different judgments or
utilized different estimates.

   Accounting for income taxes.  In preparing our consolidated financial
statements we are required to estimate our income taxes in each of the
jurisdictions in which we operate. We estimate our actual current tax exposure
and the temporary differences resulting from differing treatment of items, such
as deferred revenue, for tax and accounting purposes. These differences result
in deferred tax assets and liabilities, which are included within our
consolidated balance sheet. We must then assess the likelihood that our
deferred tax assets will be recovered from future taxable income. If we believe
that recovery of these deferred assets is not likely, we must establish a
valuation allowance. To the extent we either establish or increase a valuation
allowance in a period, we must include an expense within the tax provision in
the statement of operations.

   We provide US taxes on earnings of our non-US subsidiaries, to the extent
such earnings are not permanently reinvested. Significant management judgment
is needed in estimating the extent to which earnings are considered permanently
reinvested. As of December 31, 2001, the non-US earnings considered permanently
reinvested were not material.

   Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have not recorded a
valuation allowance as of December 31, 2001. If actual results differ from
these estimates or we adjust these estimates in future periods we may need to
establish a valuation allowance that could materially impact our financial
position and results of operations.

   The net deferred tax asset as of December 31, 2001 was $22.6 million.

   Valuation of long-lived and intangible assets and goodwill.  We assess the
impairment of identifiable intangibles, long-lived assets and related goodwill
and enterprise level goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the following:

  .   significant underperformance relative to expected historical or projected
      future operating results;

                                      16


<PAGE>

  .   significant changes in the manner of our use of the acquired assets or
      the strategy for our overall business;

  .   significant negative industry or economic trends;

  .   significant decline in our stock price for a sustained period; and

  .   our market capitalization relative to net book value.

   When we determine that the carrying value of intangibles, long-lived assets
and related goodwill and enterprise level goodwill may not be recoverable based
upon the existence of one or more of the above indicators of impairment, we
measure any impairment based on a projected discounted cash flow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our current business model. Net intangible assets, long-lived
assets, and goodwill amounted to $117.9 million as of December 31, 2001.

   In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, we
will cease to amortize approximately $52.0 million of goodwill. We had recorded
approximately $7.6 million of amortization on these amounts during 2001 and
would have recorded approximately $7.3 million of amortization during 2002. In
lieu of amortization, we are required to perform an initial impairment review
of our goodwill in 2002 and an annual impairment review thereafter. We expect
to complete our initial review during the first half of 2002.

   We currently do not expect to record an impairment charge upon completion of
the initial impairment review. However, there can be no assurance that at the
time the review is completed a material impairment charge will not be recorded.

   Determining functional currencies for the purpose of consolidation.  We have
several foreign subsidiaries which together account for approximately 45% of
our net revenues, 7% of our assets and 19% of our total liabilities as of
December 31, 2001.

   In preparing our consolidated financial statements, we are required to
translate the financial statements of the foreign subsidiaries from the
currency in which they keep their accounting records, generally the local
currency, into United States dollars. This process results in exchange gains
and losses which, under the relevant accounting guidance are either included
within the statement of operations or as a separate part of our net equity
under the caption "cumulative translation adjustment."

   Under the relevant accounting guidance the treatment of these translation
gains or losses is dependent upon our management's determination of the
functional currency of each subsidiary. The functional currency is determined
based on management judgment and involves consideration of all relevant
economic facts and circumstances affecting the subsidiary. Generally, the
currency in which the subsidiary transacts a majority of its transactions,
including billings, financing, payroll and other expenditures would be
considered the functional currency but any dependency upon the parent and the
nature of the subsidiary's operations must also be considered. If any
subsidiary's functional currency is deemed to be the local currency, then any
gain or loss associated with the translation of that subsidiary's financial
statements is included in cumulative translation adjustments. However, if the
functional currency is deemed to be the United States dollar then any gain or
loss associated with the translation of these financial statements would be
included within our statement of operations. If we dispose of any of our
subsidiaries, any cumulative translation gains or losses would be realized into
our statement of operations. If we determine that there has been a change in
the functional currency of a subsidiary to the United States dollar, any
translation gains or losses arising after the date of change would be included
within our statement of operations.

   Based on our assessment of the factors discussed above, we consider the
United States Dollar to be the functional currency for each of our
international subsidiaries except for our Japanese subsidiary, where we
consider the Japanese Yen to be the subsidiary's functional currency.

                                      17


<PAGE>

   Accounting for the synthetic lease arrangement.  We have arrangements with
two financial institutions whereby we are leasing two buildings built on a
parcel of land which we own in Foster City, California. The lessors funded the
construction of the buildings. Construction for the first building was
completed in July 1999 and the second building was completed in December 2001.
We are satisfied that the arrangements meet the requirements of FAS 13
"Accounting for Leases" and meet the requirements of construction period risk
under EITF 97-10 "The Effect of Lessee Involvement in Asset Construction" and
as a result, we are accounting for these arrangements as operating leases. The
collateral required by the lessor under one lease has been recorded as
restricted investments in the long-term assets section of the balance sheet.
See Note 6 of the financial statements for further details of these
arrangements and the future minimum lease payments due.

Results of Operations

   The following tables set forth items in the Company's consolidated
statements of income as a percentage of total revenue for 2001, 2000 and 1999,
and the year-to-year percentage change from 2001 over 2000 and from 2000 over
1999, respectively. These operating results are not necessarily indicative of
results for any future period.


<TABLE>
<CAPTION>
                                                                                      % change
                                                                                     ---------
                                                            Years ended December 31, 2001  2000
                                                            -----------------------  over  over
                                                             2001       2000   1999  2000  1999
                                                            ----       ----   ----   ----  ----
<S>                                                         <C>        <C>    <C>    <C>   <C>
Revenue.................................................... 100%       100%   100%   (12)%   3 %
Cost of revenue............................................  55%        53%    51%    (9)%   7 %
                                                            ---        ---    ---
Gross profit...............................................  45%        47%    49%   (15)%  (1)%
                                                            ---        ---    ---
Research and development...................................  19%        16%    13%     4 %  26 %
Sales and marketing........................................  11%        11%    11%   (12)%   9 %
General and administrative.................................   5%         4%     3%     3 %  35 %
Amortization of goodwill and other acquisition-related
  charges..................................................   2%         4%   -- %   (48)% 100 %
                                                            ---        ---    ---
Operating expenses.........................................  37%        35%    27%    (7)%  34 %
                                                            ---        ---    ---
Income from operations.....................................   8%        12%    22%   (39)% (44)%
                                                            ---        ---    ---
Other income, net..........................................   3%         4%     3%   (19)%  33 %
                                                            ---        ---    ---
Income before income taxes.................................  11%        16%    25%   (34)% (35)%
Provision for income taxes.................................   4%         6%     8%   (43)% (20)%
                                                            ---        ---    ---
Net income.................................................   7%        10%    17%   (28)% (43)%
                                                            ===        ===    ===
</TABLE>


  Revenue

   The Company's revenue in 2001 was principally derived from three major
categories. The first category was made up of stand-alone servers which connect
digital color copiers with computer networks. This category includes the Fiery
X3, X4, Z4, Z5 and Z18 products and accounted for a majority of the Company's
revenue prior to 1999. The second category consisted of embedded desktop
controllers, bundled color solutions and chipsets primarily for the office
market. The third category consisted of controllers for digital black and white
products.

                                      18


<PAGE>

   The following is a break-down of revenue in dollars and volumes as a
percentage of total units shipped by category.


<TABLE>
<CAPTION>
                                                                              % change
                                                                             ---------
                                                                             2001  2000
                                                                             over  over
Revenue                            2001 Revenue  2000 Revenue  1999 Revenue  2000  1999
-------                            ------------  ------------  ------------  ----  ----
                                                (in thousands)
<S>                                <C>      <C>  <C>      <C>  <C>      <C>  <C>   <C>
Stand-alone Servers Connecting to
  Digital Color Copiers........... $215,155  42% $268,436  46% $244,028  43% (20)%  10 %
Embedded Desktop Controllers,
  Bundled Color Solutions &
  Chipset Solutions...............  151,499  29%  129,277  22%  149,899  26%  17 % (14)%
Controllers for Digital Black and
  White Solutions.................   95,522  18%  130,780  22%  121,071  21% (27)%   8 %
Spares, Licensing & Other misc.
  sources.........................   55,432  11%   59,956  10%   55,754  10%  (8)%   8 %
                                   -------- ---  -------- ---  -------- ---
   Total Revenue.................. $517,608 100% $588,449 100% $570,752 100% (12)%   3 %
                                   ======== ===  ======== ===  ======== ===
</TABLE>



<TABLE>
<CAPTION>
                                                             2001   2000   1999
Volume                                                      Volume Volume Volume
------                                                      ------ ------ ------
<S>                                                         <C>    <C>    <C>
Stand-alone Servers Connecting to Digital Color Copiers....   12%    16%    14%
Embedded Desktop Controllers, Bundled Color Solutions &
  Chipset Solutions........................................   52%    48%    50%
Controllers for Digital Black and White Solutions..........   30%    32%    36%
Spares, Licensing & Other misc. sources....................    6%     4%    --
                                                             ---    ---    ---
   Total Volume............................................  100%   100%   100%
                                                             ===    ===    ===
</TABLE>


   Revenue decreased to $517.6 million in 2001, compared to $588.4 million in
2000 and $570.8 million in 1999, which resulted in a 12% decrease in 2001
versus 2000 and an increase of 3% in 2000 compared to 1999. The corresponding
unit volume decreased by 12% in 2001 over 2000 and increased by 20% in 2000
over 1999. The decrease in revenue in 2001 from 2000 was primarily from a
decline in average selling prices due to changes in product mix, which was a
reflection of the slowdown in the general economic conditions. The increase in
revenue in 2000 from 1999 was primarily due to increases in unit volumes and
positive market acceptance of new product introductions, partially offset by a
decline in average selling prices due to changes in product mix.

   The category of stand-alone servers made up 42% of total revenue and 12 % of
total unit volume in 2001. The decrease in revenue over 2000 was a result of
the move from the high-end stand alone servers to less expensive solutions.
This category made up 46% of total revenue and 16% of total unit volume in 2000
and 43% of total revenue and 14% of total unit volume in 1999. Sales of
products in this category declined in 2001 as business users were cautious in
buying high ticket items in the recession-bound economy. There appears to be a
transition to equipment with embedded controllers as that equipment offers
products that were previously only offered with the stand-alone servers. This
transition is reflected in the 17% increase in revenue in 2001 over 2000 in the
desktop product category. This category made up 29% of total revenue and 52% of
total unit volume in 2001. It made up 22% of total revenue and 48% of total
unit volume in 2000 and 26% of total revenue and 50% of total unit volume in
1999. The decline from 1999 to 2000 in absolute dollars in this category was
primarily the result of product transitions. These products, except for the
chipset solutions, are generally characterized by much higher unit volumes but
lower unit prices and associated margins than the Company has experienced in
its more traditional stand-alone server line of products. The chipset solutions
can be characterized by lower unit prices but significantly higher per unit
margins compared to the traditional stand-alone server line of products. The
black and white product category saw a decline in 2001, with 18% of total
revenue and 30% of total unit volume in 2001, compared to 22% of the revenue
and 32% of the volume in 2000. In 1999 black and white

                                      19


<PAGE>

controllers represented only 21% of the revenue and 36% of the unit volume.
This product category can be characterized by much higher unit volumes and
lower unit prices and associated margins than the Company has experienced in
its more traditional stand-alone server line of products. To the extent these
categories do not grow over time in absolute terms, or if the Company is not
able to meet demand for higher unit volumes, it could have a material adverse
effect on the Company's operating results. There can be no assurance that the
new products for 2002 will be qualified by all the OEMs, or that they will
successfully compete, or be accepted by the market, or otherwise be able to
effectively replace the volume of revenue and/or income from the older products.

   The Company also believes that in addition to the factors described above,
price reductions for all of its products may affect revenues in the future. The
Company has made and may in the future make price reductions for its products
in order to drive demand and remain competitive. Depending upon the
price-elasticity of demand for the Company's products, the pricing and quality
of competitive products, and other economic and competitive conditions, such
price reductions may have an adverse impact on the Company's revenues and
profits. If the Company is not able to compensate for lower gross margins that
may result from price reductions with an increased volume of sales, its results
of operations could be adversely affected. In addition, if the Company's
revenue in the future depends more upon sales of products with relatively lower
gross margins than the Company obtained in 2001 (such as embedded controllers
for printers, embedded controllers for color and black-and-white copiers, and
stand-alone controllers for black-and-white copiers), results of operations may
be adversely affected.

   Shipments by geographic area for the years ended December 31, 2001, 2000 and
1999 were as follows:


<TABLE>
<CAPTION>
                                                                         % change
                                                                        ---------
                                      Years ended December 31,          2001  2000
                              ----------------------------------------  over  over
                                  2001          2000          1999      2000  1999
                              ------------  ------------  ------------  ----  ----
                                                 (In thousands)
<S>                           <C>      <C>  <C>      <C>  <C>      <C>  <C>   <C>
North America................ $256,781  50% $291,679  50% $277,997  49% (12)%   5 %
Europe.......................  181,605  35%  191,403  32%  182,602  32%  (5)%   5 %
Japan........................   61,459  12%   85,983  15%   90,781  16% (29)%  (5)%
Rest of World................   17,763   3%   19,384   3%   19,372   3%  (8)%   0 %
                              -------- ---  -------- ---  -------- ---
                              $517,608 100% $588,449 100% $570,572 100% (12)%   3 %
                              ======== ===  ======== ===  ======== ===
</TABLE>


   The decrease in revenue between 2000 and 2001stems from increasing sales of
low end products as well as the continuing difficult economic times across all
regions, particularly in Japan. Deteriorating worldwide economic conditions may
continue to have an adverse impact on the Company's results of operations in
the future.

   As shipments to some of the Company's OEM partners are made to centralized
purchasing and manufacturing locations which in turn sell through to other
locations, the Company believes that export sales of its products into each
region may differ from what is reported, though accurate data is difficult to
obtain. The Company expects that export sales will continue to represent a
significant portion of its total revenue.

   Substantially all of the revenue for the last three years was attributable
to sales of products through the Company's OEM channels with such partners as
Canon, Epson, Fuji-Xerox, IBM, Hewlett-Packard, Kodak/Danka Business Systems,
Konica, Lanier, Minolta, Oce, Ricoh, Sharp, Xerox and others. During 2001, the
Company has continued to work on both increasing the number of OEM partners,
and expanding the size of existing relationships with OEM partners. The Company
relied on four OEM customers, Canon, Xerox, Minolta and Ricoh in aggregate for
79%, 76%, and 75% of its revenue for 2001, 2000 and 1999, respectively. In the
event that any of these OEM relationships are scaled back or discontinued, the
Company may experience a significant negative impact on its consolidated
financial position and results of operations. In addition, no assurance can be
given that the Company's relationships with these OEM partners will continue.

                                      20


<PAGE>

   The Company continues to work on the development of products utilizing the
Fiery, Splash and EDOX architecture and other products and intends to continue
to introduce new generations of server and controller products and other new
product lines with current and new OEM's in 2001 and beyond. No assurance can
be given that the introduction or market acceptance of new, current or future
products will be successful.

  Cost of Revenue

   The Company's color servers as well as embedded desktop controllers and
digital black and white products are manufactured by third-party manufacturers
who purchase most of the necessary components. The Company sources directly
processors, memory, certain ASICs, and software licensed from various sources,
including PostScript interpreter software, which the Company licenses from
Adobe Systems, Inc.

  Gross Margins

   The Company's gross margin was 45%, 47% and 49% for 2001, 2000 and 1999
respectively. The decrease in gross margin from 47% to 45% from 2000 to 2001
and from 49% to 47% from 1999 to 2000 was primarily due to a higher mix of
low-end products with relatively lower margins and the volatile components
market.

   The Company expects that sales of products with relatively lower margins may
further increase as a percentage of revenue. Such products include embedded
products for both desktop printers and copiers, stand-alone servers, embedded
controllers for black-and-white copiers and older products for which prices are
reduced during product transitions. If such sales increase as a percentage of
the Company's revenue, gross margins may decline.

   In general, the Company believes that gross margins will continue to be
impacted by a variety of factors. These factors include the market prices that
can be achieved on the Company's current and future products, the availability
and pricing of key components (including DRAM, Processors and Postscript
interpreter software), third party manufacturing costs, product, channel and
geographic mix, the success of the Company's product transitions and new
products, competition, and general economic conditions in the United States and
abroad. Consequently, the Company anticipates gross margins will fluctuate from
period to period.

   In addition to the factors affecting revenue described above, the Company
expects to be subject to pressures to reduce prices, and as a result, gross
margins for all of its products may be lower and therefore the Company's
current gross margins may be volatile.

  Operating Expenses

   Operating expenses decreased by 7% in 2001 over 2000 and increased by 34% in
2000 over 1999. Operating expenses as a percentage of revenue amounted to 37%,
35%, and 27% for 2001, 2000 and 1999, respectively. Operating expenses in
absolute dollars decreased $3.1 million before the amortization of goodwill and
other acquisition-related charges in 2001 compared to 2000, the result of
management's focus on reducing expenses during a difficult business climate.
There was an increase of $29.2 million in 2000 compared to 1999, primarily
caused by costs associated with the development and introduction of new
products and the hiring of additional full time employees to support the
growing business (a net increase of 137 people at December 31, 2000 over
December 31, 1999).

   Operating expenses for 2001 included approximately $12.3 million for the
amortization of goodwill and other intangibles. In 2000 the Company included in
operating expenses $23.6 million of acquisition related costs and the
amortization of goodwill and other intangibles from the acquisition of Splash.
In 1999 the Company incurred non-recurring expenses of $1.4 million of
merger-related expenses associated with the merger of MGI and $1.8 million of
expense associated with the Company's move to central facilities in Foster
City, of which approximately $0.2 million related to cost of revenue.

                                      21


<PAGE>

   The Company anticipates that operating expenses may increase both in
absolute dollars and as a percentage of revenue.

   The components of operating expenses are detailed below.

  Research and Development

   Expenses for research and development consist primarily of personnel
expenses and, to a lesser extent, consulting, depreciation and costs of
prototype materials. Research and development expenses were $98.1 million or
19% of revenue in 2001 compared to $94.1 million or 16% of revenue in 2000 and
$75.0 million or 13% of revenue in 1999. The year over year increase in
research and development expenses was mainly due to an increase in research and
development projects. The majority of the 26% increase in research and
development expenses in 2000 compared to 1999 was due to a 23% growth in
engineering headcount. The Company believes that the development of new
products and the enhancement of existing products are essential to its
continued success, and intends to continue to devote substantial resources to
research and product development efforts. Accordingly, the Company expects that
its research and development expenses may increase in absolute dollars and also
as a percentage of revenue.

  Sales and Marketing

   Sales and marketing expenses include personnel expenses, costs for trade
shows, marketing programs and promotional materials, sales commissions, travel
and entertainment expenses, depreciation, and costs associated with sales
offices in the United States, Europe, Japan and other locations around the
world. Sales and marketing expenses for 2001 were $56.8 million or 11% of
revenue compared to $64.5 million or 11% of revenue in 2000 and $59.4 million
or 11% in 1999. Sales and marketing expenses have been maintained at 11% of
revenue through controlled spending. The increase in desktop and embedded
product sales has contributed to the reduction in marketing expenses, as the
OEM's require less support from the Company for these products.

   The Company expects that its sales and marketing expenses may increase in
absolute dollars and possibly also as a percentage of revenue as it continues
to actively promote its products, and launch new products. This expected
increase might not proportionally increase with increases in volume if the
Company's sales continue to gravitate toward desktop and embedded products
which require less marketing support from the Company.

  General and Administrative

   General and administrative expenses consist primarily of personnel expenses
and, to a lesser extent, depreciation and facility costs, professional fees and
other costs associated with public companies. General and administrative
expenses were $25.5 million or 5% of revenue in 2001, compared to $24.8 million
or 4% of revenue in 2000 and $18.4 million or 3% of revenue in 1999. General
and administrative expenses have increased as a percentage of total revenue and
in absolute dollars over the three year period ended 2001. The increases in
2001 over 2000 and in 2000 over 1999 were primarily due to the increase in
headcount to support the needs of the growing Company's operations, including a
business development department, a Dutch transaction processing center, and a
ERP implementation team. The Company expects that its general and
administrative expenses may continue to increase in absolute dollars and
possibly also as a percentage of revenue in order to support the Company's
efforts to grow its business.

  Amortization of goodwill and acquisition-related charges

   Amortization of goodwill and other intangibles was $12.3 million or 2% of
revenue in 2001 and $3.3 million or less than 1% of revenue for 2000.
Acquisition-related charges in 2000 were $20.3 million, or 3% of revenue. At
December 31, 2001 the unamortized portion of goodwill and other intangibles
totaled $62.9 million and was being amortized over estimated lives ranging from
4 to 7 years. SFAS No. 142, issued in

                                      22


<PAGE>

July, 2001, requires, among other things, the discontinuance of goodwill
amortization for fiscal years beginning after March 15, 2001. Upon adoption of
the standard, we will cease amortizing goodwill. During the twelve months ended
December 31, 2001 goodwill amortization expense totaled $7.6 million. Net
unamortized goodwill at December 31, 2001 was $42.4 million. Net intangible
assets totaling $1.5 million will require reclassification to goodwill as of
January 1, 2002 as a result of the adoption of SFAS No. 142. Any adjustments as
a result of the initial implementation of SFAS No. 142 impairment tests will be
recorded as a cumulative effect of change in accounting principle effective
January 1, 2002.

  Merger related expenses

   On August 31, 1999 the Company merged with MGI, a Minnesota-based
corporation that develops digital print on demand products and other digital
imaging products through a pooling-of-interests transaction. The Company
incurred approximately $1.4 million of non-recurring expenses related to the
merger which consisted primarily of professional fees, severance costs, and
travel expenses.

  Other Income

   Other income relates mainly to interest income and expense, and gains and
losses on foreign currency transactions. Other income of $17.5 million in 2001
decreased by 19% from $21.6 million in 2000. Other income of $21.6 million in
2000 increased by 33% from $16.3 million in 1999. The decrease in 2001 from
2000 is due mainly to a lower return on investments as a result of lower market
interest rates in 2001 compared to 2000. The increase in 2000 from 1999 is due
to an increase in the average investment balance as well as more favorable
market interest rates in 2000 compared to 1999.

  Income Taxes

   The Company's effective tax rate was 35.5% in 2001, 40.8% in 2000 and 33% in
1999. In each of these years the Company benefited from tax-exempt interest
income, a foreign sales corporation, and the utilization of the research and
development credits. The Company's effective tax rate for 2001 and 2000 was
adversely impacted by charges associated with the acquisition of Splash (in
process research and development and amortization of intangible assets in 2000
and amortization of intangible assets in 2001). Excluding the impact of the
Splash acquisition related charges, the Company's effective tax rate for 2001
and 2000 was 33%. The Company currently estimates that its actual tax rate for
2002, will be approximately 30%.

Stock Option Repricing

   During the fourth quarter of 2001, the Company authorized the implementation
of an option exchange program pursuant to which our current employees would
have the opportunity to exchange their outstanding options to purchase shares
of our common stock for new stock option grants to be made to them at a later
date. Outstanding stock options granted between December 1, 1999 and May 31,
2000 under our 1990 Plan or our 1999 Plan will be exchanged for new replacement
options to be granted under our 1999 Plan during the second quarter of 2002.
The number of shares of Common Stock subject to each new option will be equal
to two-thirds of the number of shares of Common Stock subject to the tendered
option. Options for approximately 2,590,825 shares of common stock were
eligible for participation in the option exchange program. At the conclusion of
the option exchange program on October 12, 2001, the Company accepted for
exchange and cancelled options to purchase an aggregate of 2,500,143 shares of
our common stock. As a result, we expect to issue new replacement options to
purchase approximately 1,666,762 shares of common stock in 2002 in exchange for
those cancelled options. However, no replacement options will be granted to any
employee whose options were cancelled pursuant to the option exchange program,
unless that individual continues in our employ through the grant date of the
replacement option.

                                      23


<PAGE>

Recent Accounting Pronouncements

   In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company believes that the adoption of SFAS No. 141 will not have a
significant impact on its financial statements.

   In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective for fiscal years beginning after December 15, 2001.
SFAS No. 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for
the reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. Upon
adoption of SFAS 142 the Company will cease to amortize approximately $62.9
million of goodwill. During 2001 the Company recorded approximately
$7.6 million of goodwill amortization and would have recorded approximately
$7.6 million of goodwill amortization during 2002. In addition the Company will
be required to perform an impairment review of its goodwill balance upon the
initial adoption of SFAS No. 142. The impairment review will involve a two-step
process as follows:

    1. The fair value of our reporting units will be compared to the carrying
       value, including goodwill, of each of those units. For each reporting
       unit where the carrying value, including goodwill, exceeds the unit's
       fair value, step 2 will be performed. If a unit's fair value exceeds the
       carrying value, no further work is performed and no impairment charge is
       necessary.

    2. An allocation of the fair value of the reporting unit to its
       identifiable tangible and non-goodwill intangible assets and liabilities
       will be performed. This will derive an implied fair value for the
       reporting unit's goodwill. The implied fair value of the reporting
       unit's goodwill with the carrying amount of reporting unit's goodwill
       will then be compared and if the carrying amount of the reporting unit's
       goodwill is greater than the implied fair value of its goodwill, an
       impairment loss will be recognized for the excess.

   We expect to complete this review during the first half of 2002. We do not
expect to record an impairment charge upon completion of the initial review.
However, there can be no assurance that at the time the review is completed a
material impairment charge may not be recorded

   On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived
Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. SFAS No. 144 requires
that long-lived assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the
entity and (2) will be eliminated from the ongoing operations of the entity in
a disposal transaction. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS No.
144 will have a material effect on its consolidated financial statements, when
it is adopted in 2002.

Liquidity and Capital Resources

   Cash, cash equivalents and short-term investments increased by $97.6 million
to $451.2 million as of December 31, 2001, from $353.6 million as of December
31, 2000. Working capital increased by $48.1 million to $438.0 million as of
December 31, 2001, up from $389.9 million as of December 31, 2000.

   Net cash provided by operating activities was $126.4 million, $76.5 million
and $131.5 million in 2001, 2000 and 1999, respectively. Cash provided by
operating activities increased in 2001 as a result of a decrease in

                                      24


<PAGE>

inventories and accounts receivable from customers and subcontract
manufacturers and an increase in income taxes payable, offset with a decrease
in accounts payable and accrued liabilities.

   The Company has continued to invest cash in short-term investments, mainly
municipal securities. Purchases in excess of sales of short-term investments
were $8.3 million in 2001 and $38.0 million in 1999, while sales in excess of
purchases were $57.5 million in 2000. The Company's capital expenditures
generally consist of investments in computers and related peripheral equipment
and office furniture for use in the Company's operations. The Company purchased
approximately $14.5 million, $15.5 million and $15.6 million of such equipment
and furniture during 2001, 2000 and 1999, respectively. The Company purchased
land and facilities in Minnesota for approximately $4.8 million and incurred
$7.1 million in land improvements at its Foster City campus during 2001. During
2000 the Company invested $83.8 million, net of cash received, in the
acquisition of Splash.

   Net cash provided by financing activities of $13.9 million in 2001 were
primarily the result of exercises of common stock options and the tax benefits
to the Company associated with those exercises. Net cash used in financing
activities of $82.5 million in 2000 was primarily the difference between the
$100.0 million used to repurchase common stock and the cash received from
exercises of common stock options, net of the tax benefits associated with the
exercises. Net cash provided by financing activities of $26.7 million in 1999
were primarily the result of exercises of common stock options and the tax
benefits to the Company associated with those exercises. Net cash provided by
financing activities in 2001, 1999 and 1999 includes approximately
$3.1 million, $0.8 million and $0.9 million of cash used to repay long-term
obligations.

   We do not have significant long term debt outstanding. Future payments due
under lease obligations as of December 31, 2001 (in thousands):


<TABLE>
<CAPTION>
                                                Non-Cancelable
                                                  Operating
                                                    Leases
                                                --------------
                  <S>                           <C>
                  2002.........................    $ 3,268
                  2003.........................      2,997
                  2004.........................      2,318
                  2005.........................      1,161
                  2006.........................      1,027
                  2007 and thereafter..........         --
                                                   -------
                                                   $10,771
                                                   =======
</TABLE>


  Off-Balance Sheet Financing--Synthetic Lease Arrangement

   In 1997, the Company began development of a corporate campus on a 35-acre
parcel of land in Foster City, California. During 1997 and 1999 the Company
spent approximately $27.3 million on the land and associated improvement costs.
In addition to purchasing the land, the Company entered into an agreement
("1997 Lease") to lease a ten-story 295,000 square foot building to be
constructed on the site. The lessor of the building funded $56.8 million for
the construction of the building. In July 1999 the Company completed
construction of the building and began making rent payments. Also in
conjunction with the lease, the Company has entered into a separate ground
lease with the lessor of the building for approximately 35 years. If the
Company does not renew the building lease, the ground lease converts to a
market rate.

   In December 1999 the Company entered into a second agreement ("1999 Lease"
and together with the 1997 Lease, the "Leases") to lease a maximum of 543,000
square feet of additional facilities, to be constructed adjacent to the first
building discussed above. As of December 31, 2001 the lessor has funded $38.3
million of a maximum commitment of $137.0 million for the construction of the
facilities, with the portion of the committed amount actually used for
construction to be determined by the Company. Rent obligations for the
building, which

                                      25


<PAGE>

will begin in January 2002, will bear a direct relationship to the carrying
cost of the commitments drawn down. Construction of the first of the additional
facilities began in January 2000 and was completed in December 2001. Further
construction of additional facilities has been halted for the time being. On
January 18, 2002, the Company relinquished $93.9 million of the original loan
commitment back to the Lender. The total funding received under the 1999 Lease
at the time of relinquishment was $43.1 million. In connection with the lease,
the Company entered into a lease of the related parcels of land in Foster City
to the lessor of the buildings at a nominal rate and for a term of 30 years. If
the Company does not renew the building lease, the ground lease converts to a
market rate.

   Both Leases have an initial term of seven years, with options to renew
subject to certain conditions. The Company may, at its option, purchase the
facilities during or at the end of the term of the lease for the amount
expended by the respective lessor to construct the facilities ($56.8 million
for the 1997 Lease and $43.1 million for the 1999 Lease). The Company has
guaranteed to the lessors a residual value associated with the buildings equal
to approximately 82% of the their funding. The Company may be liable to the
lessor for the amount of the residual guarantee if it either fails to renew the
lease or does not purchase or locate a purchaser for the leased building at the
end of the lease term. The Company is liable to the lessor for the total amount
financed if it defaults on its covenants ($56.8 million for the 1997 Lease and
$43.1 million for the 1999 Lease). During the term of the leases the Company
must maintain a minimum tangible net worth. In addition, the Company has
pledged certain marketable securities, which are in proportion to the amount
drawn under each lease. Under the 1997 Lease, the pledged collateral ($72.0
million at December 31, 2001) may be withdrawn at any time, but withdrawal
results in an increase to the lease rate and the imposition of additional
financial covenant restrictions. The funds pledged under the 1999 Lease ($40.1
million at December 31, 2001) may be invested by the Company in certain
securities, however the funds are restricted as to withdrawal at all times. The
Company is treated as owner of these buildings for income tax purposes.

  Derivatives

   We conduct our operations globally, however, our transactions are primarily
conducted using the United States Dollar. We enter into a limited number of
forward foreign exchange contracts in order to hedge the currency fluctuations
between the Company and its Japanese subsidiary. No forward foreign exchange
contracts were outstanding at December 31, 2001. We do not use any derivatives
for trading or speculative purposes.

  Euro


   On January 1, 1999, the "Euro" was introduced. On that day, the exchange
ratios of the currencies of the eleven countries participating in the first
phase of the European Economic and Monetary Union were fixed. The Euro became a
currency in its own right and the currencies of the participating countries,
while continuing to exist for a three-year transition period, are now fixed
denominations of the Euro. The conversion to the Euro will have significant
effects on the foreign exchange markets and bond markets and is requiring
significant changes in the operations and systems within the European banking
industry. Our information system is designed to accommodate multi-currency
environments. As a result, we have the flexibility to transact business with
vendors and customers in either Euro or traditional national currency units.

  Financial Risk Management

   The following discussion about our risk management activities includes
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.

   As a global concern, we face exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on our financial
results. Our primary exposures related to non U.S. dollar-denominated sales in
Japan and operating expenses in Japan and the Netherlands. At the present time,
we do not hedge against these currency exposures.

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<PAGE>

   We maintain investment portfolio holdings of various issuers, types and
maturities, typically US Treasury securities and municipal bonds. These
securities are classified as available-for-sale, and consequently are recorded
on the balance sheet at fair value with unrealized gains and losses reported as
a separate component of accumulated other comprehensive income (loss). These
securities are not leveraged and are held for purposes other than trading.

   We also maintain minority investments in private companies. These
investments are reviewed for other than temporary declines in value on an
annual basis. Reasons for other than temporary declines in value include
whether the related company would have insufficient cash flow to operate for
the next twelve months, significant changes in the operating performance or
operating model and changes in market conditions. As of December 31, 2001, the
minority venture investments we continue to hold totaled $0.4 million at
estimated fair value. During 2001, we recorded a $0.2 million impairment charge
in connection with these investments.

   The Company's inventory consists primarily of memory subsystems, processors
and ASICs, which are sold to third-party contract manufacturers responsible for
manufacturing the Company's products. Should the Company decide to purchase
components and do its own manufacturing, or should it become necessary for the
Company to purchase and sell components other than the processors, ASICs or
memory subsystems for its contract manufacturers, inventory balances and
potentially fixed assets would increase significantly, thereby reducing the
Company's available cash resources. Further, the inventory the Company carries
could become obsolete, thereby negatively impacting the Company's consolidated
financial position and results of operations. The Company is also reliant on
several sole-source suppliers for certain key components and could experience a
further significant negative impact on its consolidated financial position and
results of operations if such supply were reduced or not available.

   The Company may be required to compensate its sub-contract manufacturers for
components purchased for orders subsequently cancelled by the Company. The
Company periodically reviews the potential liability and the adequacy of the
related reserve. The Company's consolidated financial position and results of
operations could be negatively impacted if the Company were required to
compensate the sub-contract manufacturers in amounts in excess of the accrued
liability.

   The Company, along with its directors and certain officers and employees,
has been named in class action lawsuits filed in both the San Mateo County
Superior Court and the United States District Court for the Northern District
of California. The lawsuits are all related to the precipitous decline in the
trading price of the Company's stock that occurred in December 1997. The
Company believes the lawsuits are without merit and intends to contest them
vigorously, but there can be no assurance that if damages are ultimately
awarded against the Company, the litigation will not adversely affect the
Company's results of operations. See Item 3 "Legal proceedings."

   Splash, along with former Splash officers were named in class action
lawsuits filed in the United States District Court for the Northern District of
California. The lawsuits are related to a decline in Splash's stock price
during 1997. The Company became successor to the lawsuits when it acquired
Splash in October 2001. The Company believes the lawsuits are without merit and
intends to contest them vigorously, but there can be no assurance that if
damages are ultimately awarded against the Company, the litigation will not
adversely affect the Company's results of operations. See Item 3 "Legal
proceedings."

   In December 2001, Mr. Jan R. Coyle threatened to sue the Company and its
customers for infringing a purported soon to be issued patent and for
misappropriating trade secrets. The Company believes that Mr. Coyle's threats
are without merit and that it has no liability under any claims Mr. Coyle could
bring. The Company has sought declaratory relief as well as an injunction
against Mr. Coyle. See Item 3 "Legal proceedings."

                                      27


<PAGE>

   The Company believes that its existing capital resources, together with cash
generated from continuing operations will be sufficient to fund its operations
and meet capital requirements through at least 2002.

Factors That Could Adversely Affect Performance

   Our performance may be adversely affected by the following factors:

  We rely on sales to a relatively small number of OEM partners, and the loss
  of any of these customers could substantially decrease our revenues

   Because we sell our products primarily to our OEM partners, we rely on high
sales volumes to a relatively small number of customers. We expect that we will
continue to depend on these OEM partners for a significant portion of our
revenues. If we lose an important OEM or we are unable to recruit additional
OEMs, our revenues may be materially and adversely affected. We cannot assure
you that our major customers will continue to purchase our products at current
levels or that they will continue to purchase our products at all. In addition,
our results of operations could be adversely affected by a decline in demand
for copiers or laser printers, other factors affecting our major customers, in
particular, or the computer industry in general. Xerox, our second largest
customer, has in the past experienced serious financial difficulties in their
business. If Xerox continues to face such difficulties, our short-term revenues
and profitability could be materially and adversely affected through, among
other things, decreased sales volumes and write-offs of accounts receivables
and inventory related to Xerox products.

   We rely upon our OEM partners to develop new products, applications and
product enhancements in a timely and cost-effective manner. Our continued
success depends upon the ability of these OEMs to meet changing customer needs
and respond to emerging industry standards and other technological changes.
However, we cannot assure you that our OEMs will effectively meet these
technological changes. These OEMs, who are not within our control, may
incorporate into their products the technologies of other companies in addition
to, or instead of our products. These OEMs may introduce and support products
that are not compatible with our products. We rely on these OEMs to market our
products with their products, and if these OEMs do not effectively market our
products our sales revenue may be materially and adversely affected. With the
exception of certain minimum purchase obligations, these OEMs are not obligated
to purchase products from us. We cannot assure you that our OEMs will continue
to carry our products.

   Our OEMs work closely with us to develop products that are specific to each
OEM's copiers and printers. Many of the products we are developing require that
we coordinate development, quality testing, marketing and other tasks with our
OEMs. We cannot control our OEMs' development efforts and coordinating with our
OEMs may cause delays that we cannot manage by ourselves. In addition, our
sales revenue and results of operations may be adversely affected if we cannot
meet our OEM's product needs for their specific copiers and printers, as well
as successfully manage the additional engineering and support effort and other
risks associated with such a wide range of products.

   We are pursuing, and will continue to pursue, the business of additional
copier and printer OEMs. However, because there are a limited number of OEMs
producing copiers and printers in sufficient volume to be attractive customers
for us, we expect that customer concentration will continue to be a risk.

   We establish expenditure levels for operating expenses based on projected
sales levels and margins, and expenses are relatively fixed in the short term.
Accordingly, if sales are below expectations in any given quarter, the adverse
impact of the shortfall in revenues on operating results may be increased by
our inability to adjust spending in the short term to compensate for this
shortfall.

  If we are unable to develop new products, or execute product introductions on
  a timely basis, our future revenue and operating results may be harmed.

   Our operating results will depend to a significant extent on continual
improvement of existing technologies and rapid innovation of new products and
technologies. Our success depends not only on our ability to predict

                                      28


<PAGE>

future requirements, but also to develop and introduce new products that
successfully address customer needs. Any delays in the launch or availability
of new products we are planning could harm our financial results. During
transitions from existing products to new products, customers may delay or
cancel orders for existing products. Our results of operations may be adversely
affected if we cannot successfully manage product transitions or provide
adequate availability of products after they have been introduced.

   We must continue to make significant investments in research and development
in order to enhance performance and functionality of our products, including
product lines different than our Fiery, Splash and EDOX servers and embedded
controllers. We cannot assure you that we will successfully identify new
product opportunities, develop and introduce new products to market in a timely
manner, and achieve market acceptance of our products. Also, if we decide to
develop new products, our research and development expenses may increase in the
short term without a corresponding increase in revenue. Finally, we cannot
assure you that products and technologies developed by others will not render
our products or technologies obsolete or noncompetitive.

  We license software used in most of our products from Adobe Systems
  Incorporated, and the loss of this license would prevent us from shipping
  these products

   Under our license agreements with Adobe, a separate license must be granted
from Adobe to us for each type of copier or printer used with a Fiery Server or
Controller. If Adobe does not grant us such licenses or approvals, if the Adobe
license agreements are terminated, or if our relationship with Adobe is
otherwise impaired, our financial condition and results of operations may be
harmed. To date, we have successfully obtained licenses to use Adobe's
PostScript(TM) software for our products, where required. However, we cannot
assure you that Adobe will continue to grant future licenses to Adobe
PostScript(TM) software on reasonable terms, in a timely manner, or at all. In
addition, we cannot assure you that Adobe will continue to give us the quality
assurance approvals we are required to obtain from Adobe for the Adobe licenses.

  If the demand for products that enable color printing of digital data
  continues to decrease, our sales revenue may decrease

   Our products are primarily targeted at enabling the printing of digital
data. If demand for this service continues to decline, or if the demand for our
OEMs specific printers or copiers for which our products are designed should
continue to decline, our sales revenue may be adversely affected. Although
demand for networked printers and copiers had increased in recent years, demand
for networked printers and copiers decreased in 2001 due to the global economic
downtown and we cannot assure you that demand will level off or increase in the
future, nor can we assure you that the demand will level off or increase for
the specific OEM printers and copiers that utilize our products. We sell
products that are large capital expenditures as well as discretionary purchase
items for our customers. In difficult economic times spending on information
technology is often decreased. As our products are of a more discretionary
nature than many other technology products, we may be more adversely impacted
by deteriorating general economic conditions than other technology firms. We
are subject to economic sensitivity that could harm our results of
operations.We believe that demand for our products may also be affected by a
variety of economic conditions and considerations, and we cannot assure you
that demand for our products or our customers' products will continue or
improve from current levels.

  If we enter new markets or distribution channels this could result in
  decreased revenues or higher operating expenses

   We continue to explore opportunities to develop product lines different from
our current servers and embedded controllers, such as our new line of graphics
arts software products, Velocity software products, eBeam, and PrintMe
Networks. We expect to invest funds to develop new distribution and marketing
channels for these and additional new products and services. We do not know if
we will be successful in developing these channels or whether the market will
accept any of our new products or services. In addition, even if we are able

                                      29


<PAGE>

to introduce new products or services, the lack of marketplace acceptability of
these new products or services may adversely impact the Company's operating
results.

  We face competition from other suppliers as well as our own OEM customers,
  and if we are not able to compete successfully then our business may be harmed

   Our industry is highly competitive and is characterized by rapid
technological changes. We compete against a number of other suppliers of
imaging products. We cannot assure you that products or technologies developed
by competing suppliers will not render our products or technologies obsolete or
noncompetitive.

   While many of our OEM's sell our products on an exclusive basis, we do not
have any formal agreements that prevent the OEMs from offering alternative
products. If an OEM offers products from alternative suppliers our market share
could decrease, which could reduce our revenue and negatively affect our
financial results.

   Many of our OEM partners themselves internally develop and sell products
that compete directly with our current products. These OEMs may be able to
develop similar products that are compatible with their own products more
quickly than we can. These OEMs have chosen to market their own products, even
if these products are technologically inferior, have lower performance or cost
more. We cannot assure you that we will be able to continue to successfully
compete against similar products developed internally by our OEMs or against
their financial and other resources. If we cannot compete successfully against
our OEMs' internally developed products, our business may be harmed.

  If we are not able to hire and retain skilled employees, we may not be able
  to develop products or meet demand for our products in a timely fashion

   We depend upon skilled employees, such as software and hardware engineers,
quality assurance engineers and other technical professionals. We are
headquartered in the Silicon Valley where competition among companies to hire
engineering and technical professionals may be intense. In times of
professional labor shortages, it may be difficult for us to locate and hire
qualified engineers and technical professionals and for us to retain these
people. There are many technology companies located near our corporate offices
in the Silicon Valley that may try to hire our employees. The movement of our
stock price may also impact our ability to hire and retain employees. If we do
not offer competitive compensation, we may not be able to recruit or retain
employees. If we cannot successfully hire and retain employees, we may not be
able to develop products timely or to meet demand for our products in a timely
fashion and our results of operations may be adversely impacted.

  Our operating results may fluctuate based upon many factors, which could
  adversely affect our stock price

   We expect our stock price to vary with our operating results and,
consequently, such fluctuations could adversely affect our stock price.
Operating results may fluctuate due to:

  .   varying demand for our products;

  .   success and timing of new product introductions;

  .   changes in interest rates and availability of bank or financing credit to
      consumers of digital copiers and printers;

  .   price reductions by us and our competitors;

  .   delay, cancellation or rescheduling of orders;

  .   product performance;

  .   availability of key components, including possible delays in deliveries
      from suppliers;

  .   the status of our relationships with our OEM partners;

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<PAGE>

  .   the performance of third-party manufacturers;

  .   the status of our relationships with our key suppliers;

  .   the financial and operational condition of OEM partners and key suppliers;

  .   potential excess or shortage of skilled employees;

  .   competition from OEMs;

  .   changes in product mix; and

  .   general economic conditions.

   Many or our products, and the related OEM copiers and printers, are
purchased utilizing lease contracts or bank financing. If prospective
purchasers of digital copiers and printers are unable to obtain credit, or
interest rate changes make credit terms undesirable, this may significantly
reduce the demand for digital copiers and printers, negatively impacting our
revenues and operating results.

   Typically we do not have long-term volume purchase contracts with our
customers, and a substantial portion of our backlog is scheduled for delivery
within 90 days or less. Our customers may cancel orders and change volume
levels or delivery times for product they have ordered from us without penalty.
However, a significant portion of our operating expenses are fixed in advance,
and we plan these expenditures based on the sales forecasts from our OEM
customers and product development programs. If we were unable to adjust our
operating expenses in response to a shortfall in our sales, it could harm our
quarterly financial results.

   We attempt to hire additional employees to match growth in projected demand
for our products. In 2001, our headcount increased by 38 people. If actual
demand is lower than our projections, we likely will have hired too many
employees and we may therefore incur expenses that we need not have incurred
and our financial results may be lower. If we project a lower demand than
materializes, we likely will have hired too few employees and we may not
therefore be able to meet demand for our products and our sales revenue may be
lower. If we cannot successfully manage our growth, our results of operations
may be harmed.

  The value of our investment portfolio will decrease if interest rates increase

   We have an investment portfolio of mainly fixed income securities classified
as available-for-sale securities. As a result, our investment portfolio is
subject to interest rate risk and will fall in value if market interest rates
increase. We attempt to limit this exposure to interest rate risk by in
securities with maturities of less than 3 years. We may be unable to
successfully limit our risk to interest rate fluctuations and this may cause
our investment portfolio to decrease in value.

  Our stock price has been and may continue to be volatile

   Our common stock, and the stock market generally, have from time to time
experienced significant price and volume fluctuations. The market prices for
securities of technology companies have been especially volatile, and
fluctuations in the stock market are often unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of our common stock. Our common stock price
may also be affected by the factors discussed in this section as well as:

  .   Fluctuations in our results of operations, revenues or earnings or those
      of our competitors;

  .   Failure of results of operations, revenues or earnings to meet the
      expectations of stock market analysts and investors;

  .   Changes in stock market analysts' recommendations regarding us;

  .   Real or perceived technological advances by our competitors;

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<PAGE>

  .   Political or economic instability in regions where our products are sold
      or used;

  .   General market and economic conditions; and

  .   Changes in accounting standards.

  We face risks from our international operations and from currency fluctuations

   Approximately 50% of our revenue from the sale of products for the twelve
month periods ended December 31, 2001 and December 31, 2000, came from sales
outside North America, primarily to Europe and Japan. We expect that sales to
international destinations will continue to be a significant portion of our
total revenue. We are subject to certain risks because of our international
operations. These risks include the regulatory requirements of foreign
governments which may apply to our products, as well as requirements for export
licenses which may be required for the export of certain technologies. The
necessary export licenses may be delayed or difficult to obtain, which could
cause a delay in our international sales and hurt our product revenue. Other
risks include trade protection measures, natural disasters, and political or
economic conditions in a specific country or region.

   We believe that economic conditions in other parts of the world may also
limit demand for our products. The move to a single European currency, the
Euro, and the resulting central bank management of interest rates to maintain
fixed currency exchange rates among the member nations may lead to economic
conditions which adversely impact sales of our products.

   Given the significance of our export sales to our total product revenue, we
face a continuing risk from the strengthening of the U.S. dollar versus the
Japanese yen, the Euro and other major European currencies, and numerous
Southeast Asian currencies, which could cause lower unit demand and the need to
lower average selling prices for our products because of the reduced strength
of local currencies. Either of these events could harm our revenues and gross
margin. Although we typically invoice our customers in U.S. dollars, when we do
invoice our customers in local currencies, our cash flows and earnings are
exposed to fluctuations in interest rates and foreign currency exchange rates
between the currency of the invoice and the U.S. dollar. We attempt to limit or
hedge these exposures through operational strategies and financial market
instruments where we consider it appropriate. To date we have mostly used
forward contracts to reduce our risk from interest rate and currency
fluctuations. However, our efforts to reduce the risk from our international
operations and from fluctuations in foreign currencies or interest rates may
not be successful, which could harm our financial condition and operating
results.

  We may be unable to adequately protect our proprietary information

   We rely on a combination of copyright, patent, trademark and trade secret
protection, nondisclosure agreements, and licensing and cross-licensing
arrangements to establish, maintain and protect our intellectual property
rights, all of which afford only limited protection. We have patent
applications pending in the United States and in various foreign countries.
There can be no assurance that patents will issue from these pending
applications or from any future applications, or that, if issued, any claims
allowed will be sufficiently broad to protect our technology. Any failure to
adequately protect our proprietary information could harm our financial
condition and operating results. We cannot be certain that any patents that may
be issued to us, or which we license from third parties, or any other of our
proprietary rights will not be challenged, invalidated or circumvented. In
addition, we cannot be certain that any rights granted to us under any patents,
licenses or other proprietary rights will provide adequate protection of our
proprietary information.

   From time to time, litigation may be necessary to defend and enforce our
proprietary rights. Such litigation, whether or not concluded successfully for
us, could involve significant expense and the diversion of our attention and
other resources.

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<PAGE>

  We face risks from third party claims of infringement and potential litigation

   Third parties have claimed in the past and may claim in the future that our
products infringe, or may infringe, their proprietary rights. Such claims could
result in lengthy and expensive litigation. Such claims and any related
litigation, whether or not we are successful in the litigation, could result in
substantial costs and diversion of our resources. Although we may seek licenses
from third parties covering intellectual property that we are allegedly
infringing, we cannot assure you that any such licenses could be obtained on
acceptable terms, if at all. See "Legal Proceedings."

  Our products may contain defects which are not discovered until after shipping

   Our products consist of hardware and software developed by ourselves and
others. Our products may contain undetected errors when first introduced or
when new versions are released, and we have in the past discovered software and
hardware errors in certain of our new products after their introduction. There
can be no assurance that errors would not be found in new versions of our
products after commencement of commercial shipments, or that any such errors
would not result in a loss or delay in market acceptance and thus harm our
reputation and revenues. In addition, errors in our products (including errors
in licensed third party software) detected prior to new product releases could
result in delays in the introduction of new products and incurring of
additional expense, which could harm our operating results.

  Seasonal purchasing patterns of our OEM customers have historically caused
  lower fourth quarter revenue, which may negatively impact the stock price

   Our results of operations have typically followed a seasonal pattern
reflecting the buying patterns of our large OEM customers. In the past, our
fiscal fourth quarter (the quarter ending December 31) results have been
adversely affected because some or all of our OEM customers wanted to decrease,
or otherwise delay, fourth quarter orders. In addition, the first fiscal
quarter traditionally has been a weaker quarter because our OEM partners focus
on training of their sales forces. The primary reasons for this seasonal
pattern are:

  .   Our OEM partners have historically sought to minimize year-end inventory
      investment (including the reduction in demand following introductory
      "channel fill" purchases);

  .   The timing of new product releases and training by our OEM partners; and

  .   Certain of our OEM partners typically achieve their yearly sales targets
      before year end and consequently delay further purchases into the next
      fiscal year (we do not know when our partners reach these sales targets
      as they generally do not share them with us).

   As a result of these factors, we believe that period to period comparisons
of our operating results are not meaningful, and you should not rely on such
comparisons to predict our future performance. We anticipate that future
operating results may fluctuate significantly due to the continuation or
changes in this seasonal demand pattern.

  We may make acquisitions and acquisitions involve numerous financial risks

   We seek to develop new technologies and products from both internal and
external sources. As part of this effort, we may make, and have in the past
made, acquisitions of other companies or other companies' assets. Acquisitions
involve numerous risks, including the following:

  .   Difficulties in integration of operations, technologies, or products;

  .   Risks of entering markets in which we have little or no prior experience,
      or entering markets where competitors have stronger market positions;

  .   Possible write-downs of impaired assets; and

  .   Potential loss of key employees of the acquired company.

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<PAGE>

   Mergers and acquisitions of companies are inherently risky, and we cannot
assure you that our previous or future acquisitions will be successful and will
not harm our business, operating results, financial condition, or stock price.

  We may incur losses on our equity investments.

   We created a fund to invest, either directly or through outside funds, in
the equity securities of privately held companies, many of which can still be
considered in the startup or development stages. These investments are
inherently risky as the market for the technologies or products they have under
development are typically in the early stages and may never materialize. We
have already recognized investment losses and could lose part of or our entire
investment in the future.

  The location and concentration of our facilities subjects us to the risk of
  earthquakes, floods or other natural disasters

   Our corporate headquarters, including most of our research and development
facilities and manufacturing operations, are located in the San Francisco Bay
Area of Northern California, an area known for seismic activity. This area has
also experienced flooding in the past. In addition, many of the components
necessary to supply our products are purchased from suppliers subject to risk
from natural disasters, based in areas including the San Francisco Bay Area,
Taiwan, and Japan. A significant natural disaster, such as an earthquake or a
flood, could harm our business, financial condition, and operating results.

  We are dependent on sub-contractors to manufacture and deliver products to
  our customers

   We subcontract with other companies to manufacture our products. We rely on
the ability of our subcontractors to produce products to be sold to our
customers, and while we closely monitor our subcontractors performance we
cannot assure you that such subcontractors will continue to manufacture our
products in a timely and effective manner. We also can not assure you that
difficulties experienced by our subcontractors, such as interruptions in a
subcontractor's ability to make or ship our products, or fix quality assurance
problems, would not harm our business, operating results, or financial
condition. If we decide to change subcontractors we could experience delays in
setting up new subcontractors which would result in delay in delivery of our
products.

  We depend upon a limited group of suppliers for key components in our products

   Certain components necessary for the manufacture of our products are
obtained from a sole supplier or a limited group of suppliers. These include
processors from Intel and other related semiconductor components. We may not
maintain long-term agreements with any of our suppliers of components. Because
the purchase of certain key components involves long lead times, in the event
of unanticipated volatility in demand for our products, we could be unable to
manufacture certain products in a quantity sufficient to meet end user demand,
or we may hold excess quantities of inventory. We maintain an inventory of
components for which we are dependent upon sole or limited source suppliers and
components with prices that fluctuate significantly. As a result, we are
subject to a risk of inventory obsolescence, which could adversely affect our
operating results and financial condition. Additionally, the market prices and
availability of certain components, particularly memory, and Intel designed
components, which collectively represent a substantial portion of the total
manufactured cost of our products, have fluctuated significantly in the past.
Such fluctuations in the future could have a material adverse effect on our
operating results and financial condition. These fluctuations could result in a
reduction in gross margins.

  We have recently implemented a new Enterprise Resource Planning System

   The Company has recently implemented a new corporate wide enterprise
resource planning ("ERP") system to replace its current system. The Company
continues to pursue deployment of new modules for additional

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<PAGE>

business purposes. The implementation of a new ERP system requires full
commitment of management and the dedication and utilization of significant
internal as well as external resources in managing the project, process
redesigns, system integration and employee training. Historically, many
companies have experienced difficulties in implementing ERP systems. These
difficulties include cost overruns, push-outs of implementation deadlines,
process and operations bottlenecks, failure to execute operating plans,
including revenue impairment due to inability to ship products, and abandonment
of the effort altogether. The Company must effectively manage its planning and
execution of the implementation of the system and the training of personnel
throughout the Company. There can be no assurance that we will be able to
effectively manage these. Any failure to effectively manage the Company's
efforts or process and operations designs and other difficulties we face in
implementing the ERP system would adversely affect the Company's financial
condition and results of operations.

  We face decreased revenues in light of ongoing economic uncertainty

   The revenue growth and profitability of our business depends significantly
on the overall demand for products that enable printing of digital data.
Softening demand for these products caused by ongoing economic uncertainty and
recession in the United States and other regions where we conduct business has
resulted, and may further result, in decreased revenues, earnings levels or
growth rates or inventory write downs. The United States and global economy,
and particularly the markets for our products have weakened substantially over
the past year and market conditions continue to be challenging. This has
resulted in individuals and companies delaying or reducing expenditures, such
as for information technology. Further delays or reductions in information
technology spending will have a material adverse effect on demand for our
products and services, and consequently on our business, operating results,
financial condition, prospects and stock price.


I
tem 7A:  Quantitative and Qualitative Disclosures About Market Risk

  Market Risk

   The Company is exposed to various market risks, including changes in foreign
currency exchange rates. Market risk is the potential loss arising from adverse
changes in market rates and prices, such as foreign currency exchange and
interest rates. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. The Company enters into
financial instrument contracts to manage and reduce the impact of changes in
foreign currency exchange rates. The counterparties to such contracts are major
financial institutions.

  Foreign Exchange Contracts

   During 2001 the Company utilized forward foreign exchange contracts to hedge
the currency fluctuations in transactions denominated in foreign currencies,
thereby limiting the Company's risk that would otherwise result from changes in
exchange rates. The transactions hedged were intercompany accounts receivable
and payable between the Company and its Japanese subsidiary. The periods of the
forward foreign exchange contracts correspond to the reporting periods of the
hedged transactions. Foreign exchange gains and losses on intercompany balances
and the offsetting losses and gains on forward foreign exchange contracts are
reflected in the income statement. The Company had no forward foreign exchange
contracts outstanding as of December 31, 2001.

  Interest Rate Risk

   The fair value of the Company's cash portfolio at December 31, 2001,
approximated carrying value. Market risk was estimated as the potential
decrease in fair value resulting from an instantaneous hypothetical 100
basis-point increase in interest rates for any debt instruments in the
Company's investment portfolio. As of December 31, 2001, the Company's cash
equivalents and short-term investment portfolio includes debt securities of
$285.0 million subject to interest rate risk. A 100 basis-point increase in
market interest rates would result in a decrease of fair value of approximately
$2.8 million.

                                      35


<PAGE>

   The fair value of the Company's long-term debt, including current
maturities, was estimated to be $0.3 million as of December 31, 2001, and
equaled the carrying value. The Company's long-term debt requires interest
payments based on a variable rate and therefore its fair value is not subject
to interest rate risk.

                                      36


<PAGE>


Item 8:  Financial Statements and Supplementary Data

                         ELECTRONICS FOR IMAGING, INC.

                          CONSOLIDATED BALANCE SHEETS
              (In thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                               ------------------
                                                                                 2001      2000
                                                                               --------  --------
<S>                                                                            <C>       <C>
Assets
Current assets:
   Cash and cash equivalents.................................................. $190,816  $102,804
   Short-term investments.....................................................  260,391   250,799
   Accounts receivable, net...................................................   53,966    72,006
   Inventories................................................................    9,297    27,076
   Other current assets.......................................................   19,639    43,166
                                                                               --------  --------
       Total current assets...................................................  534,109   495,851
                                                                               --------  --------
Property and equipment, net...................................................   55,046    51,456
Restricted investments........................................................   40,135    14,134
Other assets..................................................................   73,697    92,949
                                                                               --------  --------
       Total assets........................................................... $702,987  $654,390
                                                                               ========  ========
Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable........................................................... $ 21,616  $ 49,252
   Accrued and other liabilities..............................................   46,036    50,483
   Income taxes payable.......................................................   28,437     6,199
                                                                               --------  --------
       Total current liabilities..............................................   96,089   105,934
                                                                               --------  --------
Long-term obligations, less current portion...................................      331     3,140

Commitments and Contingencies (Note 6)
Stockholders' equity:
 Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued and
   outstanding................................................................       --        --
 Common stock, $.01 par value; 150,000,000 shares authorized; 53,878,256 and
   52,685,593 shares issued and outstanding, respectively.....................      583       575
Additional paid-in capital....................................................  261,703   240,199
Treasury stock, at cost, 4,477,500 shares.....................................  (99,959)  (99,959)
Accumulated other comprehensive income........................................    1,219       420
Retained earnings.............................................................  443,021   404,081
                                                                               --------  --------
       Total stockholders' equity.............................................  606,567   545,316
                                                                               --------  --------
          Total liabilities and stockholders' equity.......................... $702,987  $654,390
                                                                               ========  ========
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      37


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
                   (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                                   ----------------------------
                                                     2001      2000      1999
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Revenue........................................... $517,608  $588,449  $570,752
Cost of revenue...................................  282,113   311,152   290,636
                                                   --------  --------  --------
   Gross profit...................................  235,495   277,297   280,116
                                                   --------  --------  --------
Operating expenses:
   Research and development.......................   98,116    94,097    74,971
   Sales and marketing............................   56,767    64,526    59,373
   General and administrative.....................   25,456    24,784    18,403
   Amortization of goodwill and other
     acquisition-related charges..................   12,255    23,621        --
   Merger related expenses........................       --        --     1,422
                                                   --------  --------  --------
                                                    192,594   207,028   154,169
                                                   --------  --------  --------
Income from operations............................   42,901    70,269   125,947
                                                   --------  --------  --------
Other income, net.................................   17,471    21,550    16,250
                                                   --------  --------  --------
Income before income taxes........................   60,372    91,819   142,197
Provision for income taxes........................  (21,432)  (37,461)  (46,914)
                                                   --------  --------  --------
Net income........................................ $ 38,940  $ 54,358  $ 95,283
                                                   ========  ========  ========
Net income per basic common share................. $   0.73  $   0.99  $   1.74
                                                   ========  ========  ========
Shares used in per-share calculation..............   53,468    54,649    54,853
                                                   ========  ========  ========
Net income per diluted common share............... $   0.71  $   0.97  $   1.67
                                                   ========  ========  ========
Shares used in per-share calculation..............   54,605    55,983    56,963
                                                   ========  ========  ========
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      38


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                     Common Stock  Additional               Other                  Total
                                     -------------  Paid-in   Treasury  Comprehensive Retained Stockholders'
                                     Shares Amount  Capital    Stock    Income (Loss) Earnings    Equity
                                     ------ ------ ---------- --------  ------------- -------- -------------
                                                                 (in thousands)
<S>                                  <C>    <C>    <C>        <C>       <C>           <C>      <C>
Balances as of December 31, 1998.... 53,984  $540   $153,899  $     --     $ (199)    $254,440   $408,680
                                     ------  ----   --------  --------     ------     --------   --------
Comprehensive income................
 Net income.........................                                                    95,283     95,283
 Functional currency adjustment.....                                           71                      71
 Market valuation on short-term
   investments......................                                         (644)                   (644)
                                                                           ------     --------   --------
Comprehensive income................                                         (573)      95,283     94,710
Exercise of common stock options....  1,738    17     27,573                                       27,590
Tax benefit related to stock plans..                  20,207                                       20,207
                                     ------  ----   --------  --------     ------     --------   --------
Balances as of December 31, 1999.... 55,722   557    201,679        --       (772)     349,723    551,187
                                     ------  ----   --------  --------     ------     --------   --------
Comprehensive income................
 Net income.........................                                                    54,358     54,358
 Functional currency adjustment.....                                          (96)                    (96)
 Market valuation on short-term
   investments......................                                        1,288                   1,288
                                                                           ------     --------   --------
Comprehensive income................                                        1,192       54,358     55,550
Exercise of common stock options....  1,441    18     18,294        --                             18,312
Tax benefit related to stock plans..                  14,271                                       14,271
Fair value of stock options assumed.                   5,955                                        5,955
Repurchase of common stock--(held in
  treasury).........................                           (99,959)                           (99,959)
                                     ------  ----   --------  --------     ------     --------   --------
Balances as of December 31, 2000.... 57,163   575    240,199   (99,959)       420      404,081    545,316
                                     ------  ----   --------  --------     ------     --------   --------
Comprehensive income................
 Net income.........................                                                    38,940     38,940
 Functional currency adjustment.....                                         (103)                   (103)
 Market valuation on short-term
   investments......................                                          902                     902
                                                                           ------     --------   --------
Comprehensive income................                                          799       38,940     39,739
Exercise of common stock options....    975     7     13,082                                       13,089
Stock issued pursuant to ESPP.......    218     1      3,923                                        3,924
Tax benefit related to stock plans..                   4,499                                        4,499
                                     ------  ----   --------  --------     ------     --------   --------
Balances as of December 31, 2001.... 58,356  $583   $261,703  $(99,959)    $1,219     $443,021   $606,567
                                     ======  ====   ========  ========     ======     ========   ========
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      39


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                   Years ended December 31,
                                                                               --------------------------------
                                                                                 2001       2000        1999
                                                                               --------  -----------  ---------
                                                                                        (In thousands)
<S>                                                                            <C>       <C>          <C>
Cash flows from operating activities:
   Net income................................................................. $ 38,940  $    54,358  $  95,283
   Adjustments to reconcile net income to net cash provided by
     operating activities:
       Depreciation and amortization..........................................   28,012       18,461     14,464
       Purchased in-process research & development............................       --       20,300         --
       Deferred taxes.........................................................   10,139       (3,039)   (13,304)
       Change in reserve for bad debts........................................      386          988       (431)
       Other..................................................................     (126)          96         71
       Changes in operating assets and liabilities:
          Accounts receivable.................................................   17,654       10,196    (21,813)
          Inventories.........................................................   17,779      (10,305)     4,607
          Receivable from subcontract manufacturers...........................   15,861      (11,022)      (407)
          Other current assets................................................    2,937       (3,965)     2,245
          Accounts payable and accrued liabilities............................  (31,759)        (887)    13,988
          Income taxes payable................................................   26,738        1,354     36,806
                                                                               --------  -----------  ---------
              Net cash provided by operating activities.......................  126,561       76,535    131,509
                                                                               --------  -----------  ---------
Cash flows from investing activities:
   Purchases of short-term investments........................................  (62,928)  (1,134,284)  (132,188)
   Sales/maturities of short-term investments.................................   54,592    1,191,777     94,171
   Net purchases of restricted investments....................................  (26,171)     (14,134)        --
   Investment in property and equipment, net..................................  (19,347)     (15,510)   (15,622)
   Business acquired, net of cash received....................................       --      (83,769)        --
   Receipt or sale of other assets............................................    1,427          825        347
                                                                               --------  -----------  ---------
              Net cash used for investing activities..........................  (52,427)     (55,095)   (53,292)
                                                                               --------  -----------  ---------
Cash flows from financing activities:
   Repayment of long-term obligations.........................................   (3,135)        (813)      (892)
   Issuance of common stock...................................................   17,013       18,312     27,590
   Repurchase of common stock.................................................       --      (99,959)        --
                                                                               --------  -----------  ---------
              Net cash provided by (used for) financing activities............   13,878      (82,460)    26,698
                                                                               --------  -----------  ---------
Increase (decrease) in cash and cash equivalents..............................   88,012      (61,020)   104,915
Cash and cash equivalents at beginning of year................................  102,804      163,824     58,909
                                                                               --------  -----------  ---------
Cash and cash equivalents at end of year...................................... $190,816  $   102,804  $ 163,824
                                                                               ========  ===========  =========
Supplemental disclosures of cash flow information:
   Cash paid for interest..................................................... $    207  $       355  $     303
   Cash paid (refunded) for income taxes......................................  (16,809)      40,984     22,591
                                                                               ========  ===========  =========
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      40


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1:  The Company and Its Significant Accounting Policies

The Company and Its Business

   Electronics for Imaging, Inc., a Delaware corporation (the "Company"),
through its subsidiaries, designs and markets products that support color and
black-and-white printing on a variety of peripheral devices. Its products
incorporate hardware and software technologies that transform digital copiers
and printers from many leading copier manufacturers into fast, high-quality
networked printers. The Company's products include stand-alone servers, which
are connected to digital copiers and other peripheral devices, and controllers,
which are embedded in digital copiers and desktop color laser printers. The
Company operates primarily in one industry and sells its products primarily to
original equipment manufacturers in North America, Europe and Japan.
Substantially all of the Company's revenue to date has resulted from the sale
of print servers and controllers.

Significant Accounting Policies

  Basis of Presentation

   The accompanying combined consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.

  Revenue Recognition

   Revenue is recognized when the product is shipped, provided price is fixed,
no significant obligations remain and collectibility is reasonably probable.
Provisions for estimated warranty costs and potential sales returns are
recorded when revenue is recognized.

  Fair Value of Financial Instruments

   The carrying amounts of cash, cash equivalents, short-term investments,
accounts receivable, long-term investments, accounts payable, accrued
liabilities and bonds payable as presented in the financial statements,
approximate fair value based on the nature of these instruments and prevailing
interest rates.

  Concentration of Credit Risk

   The Company is exposed to credit risk in the event of default by any of its
customers to the extent of amounts recorded on the consolidated balance sheet.
Approximately 79% of the Company's revenues are derived from four customers.
The Company performs ongoing evaluations of the collectibility of the accounts
receivable balances for its customers and maintains reserves for estimated
credit losses; actual losses have been within management's expectations.

  Cash, Cash Equivalents and Short-term Investments

   The Company generally invests its excess cash in deposits with major banks,
money market securities, municipal, U.S. government and corporate debt
securities. By policy, the Company invests primarily in high-grade marketable
securities. The Company is exposed to credit risk in the event of default by
the financial institutions or issuers of these investments to the extent of
amounts recorded on the consolidated balance sheet.

   The Company considers all highly liquid investments, generally with a
maturity of three months or less at the time of purchase, to be cash
equivalents. The cost of these investments has generally approximated fair
value. Marketable investments are classified as available-for-sale or
hold-to-maturity. Available-for-sale are stated at

                                      41


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

fair value with unrealized gains and losses reported as a separate component of
stockholders' equity, net of deferred income taxes. Hold-to-maturity securities
are stated at amortized cost. Hold-to-maturity securities collateralize certain
lease obligations. Realized gains and losses on sales of investments are
included in other income.

  Inventories

   Inventories are stated at standard cost which approximates the lower of
actual cost using a first-in, first-out method, or market. The Company
periodically reviews its inventories for potential slow-moving or obsolete
items and writes down specific items to net realizable value as appropriate.

  Property and Equipment

   Property and equipment is recorded at cost. Depreciation on assets is
computed using the straight-line method over the estimated useful lives of the
assets, generally 10 to 60 months. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives of the improvements or
the lease term, if shorter. Land improvements are amortized using the
straight-line method over the estimated useful lives of the improvements.

  Amortization of Intangibles

   Goodwill and other intangible assets acquired to date are being amortized on
a straight-line basis over periods ranging from 1 to 7 years.

   In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective for fiscal years beginning after March 15, 2001.
SFAS No. 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for
the reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. Upon
adoption of the standard, we will cease amortizing goodwill. During the twelve
months ended December 31, 2001 goodwill amortization expense totaled
$7.6 million. Net unamortized goodwill at December 31, 2001 was $42.4 million.
Net intangible assets totaling $1.5 million will require reclassification to
goodwill as of January 1, 2002 as a result of the adoption of SFAS No. 142.

  Income Taxes

   The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". Under SFAS 109, deferred tax liabilities and assets are determined
based on the differences between the financial statement and tax bases of
assets and liabilities, using enacted tax rates in effect for the year in which
the differences are expected to reverse. The company has provided US taxes on
non-US income to the extent these earnings are not permanently reinvested.

  Foreign Currency Translation

   The functional currency for all of the Company's foreign operations, except
for Japan, is the U.S. dollar. The functional currency for Japan is the
Japanese Yen. Where the U.S. dollar is the functional currency, translation
adjustments are recorded in income. Where the Japanese Yen is the functional
currency, translation

                                      42


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

adjustments are recorded as a separate component of Stockholders' Equity.
Foreign currency translation and transaction gains and losses have not been
significant in any period presented.

  Accounting for Derivative Instruments and Risk Management

   The Company operates internationally, giving rise to exposure to market risk
from changes in foreign exchange rates. Derivative financial instruments are
used by the Company to reduce those risks. The Company does not hold or issue
financial or derivative financial instruments for trading or speculative
purposes. The magnitude and volume of such transactions were not material for
the periods presented. No forward foreign exchange contracts were outstanding
as of December 31, 2001.

   In June 1999, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133 (SFAS 133) "Accounting for
Derivative Instruments and Hedging". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires, among other things, that all derivatives be recognized as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137 (SFAS 137), "Accounting for Derivative Instruments
and Hedging Activities--Deferral of Effective Date of FASB Statement No. 133".
SFAS 133, as amended by SFAS 137, is effective for fiscal quarters and fiscal
years beginning after June 15, 2000. The Company adopted SFAS 133 on January 1,
2001 and the adoption of this pronouncement has not had a material impact on
the Company's financial position and results of operations.

  Stock Options

   In 1997, the Company adopted Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation". As permitted under
this standard, the Company has elected to follow Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" in
accounting for its stock options and other stock-based employee awards. Pro
forma information regarding net income and earnings per share, as calculated
under the provisions of SFAS 123, are disclosed in Note 9.

  Computation of Net Income per Common Share

   Net income per basic common share is computed using the weighted average
number of common shares outstanding during the period. Net income per diluted
common share is computed using the weighted average number of common shares and
potential common shares outstanding during the period. Potential common shares
result from the assumed exercise, using the treasury stock method, of
outstanding common stock options having a dilutive effect.

  Comprehensive Income

   Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income". This
Statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual financial
statements. This Statement also requires that an entity classify items of other
comprehensive earnings by their nature in an annual financial statement.
Comprehensive income has been presented as part of the Consolidated Statements
of Stockholder' Equity. Accumulated other comprehensive income (losses), as
presented in the accompanying consolidated balance sheets, consists of the net
unrealized gains (losses) on available-for-sale investments, net of tax, and
the cumulative translation adjustment recorded by its Japanese subsidiary.

                                      43


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  FAS 144

   On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived
Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. SFAS No. 144 requires
that long-lived assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the
entity and (2) will be eliminated from the ongoing operations of the entity in
a disposal transaction. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. We do not expect the adoption of SFAS No. 144 will
have a material effect on our consolidated financial statements.

  Reclassifications

   Certain prior year balances have been reclassified to conform with the
current year presentation.

  Use of Estimates

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Note 2:  Mergers and Acquisitions

  1999 Merger

   On August 31, 1999 the Company merged with Management Graphics Inc. ("MGI"),
a Minnesota-based corporation that developed digital print on demand products
and other digital imaging products. The merger was accounted for as a tax free,
pooling of interests combination and, accordingly, the consolidated financial
statements have been restated to include the historical results of MGI for all
periods presented prior to the acquisition, as if the merged entity was a
wholly-owned subsidiary of Electronics For Imaging, Inc. since inception.

  2000 Acquisitions

   On October 23, 2000, the Company acquired Splash Technology Holdings, Inc.
("Splash") for total consideration of approximately $159.7 million, comprising
of $146.8 million in cash, $6.0 million for the fair value of stock options
assumed and $6.9 million of capitalized transaction-related costs. The
acquisition was accounted for as a purchase business combination and
accordingly, the purchase price has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis of
their estimated fair values on the date of acquisition as follows:


<TABLE>
<CAPTION>
                                                               (in thousands)
                                                               --------------
   <S>                                                         <C>
   Fair value of assets acquired and liabilities assumed......    $ 59,885
   In-process research and development........................      20,300
   Developed technology.......................................      18,500
   Workforce-in-place.........................................       2,200
   Trademarks and trade names.................................       5,500
   Goodwill...................................................      53,275
                                                                  --------
                                                                  $159,660
                                                                  ========
</TABLE>


                                      44


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Valuation of the intangible assets acquired was determined by an independent
third-party appraiser and consists of developed technology, trademarks and
trade names, and workforce-in-place. The amount allocated to the purchased
in-process research and development ("IPR&D") was determined using established
valuation techniques and was expensed upon acquisition because technological
feasibility had not been established and no future alternative uses existed.
The percentage of completion for such products was estimated to range from 50%
to 90%. The value of this IPR&D was determined by estimating the costs to
develop the purchased IPR&D into a commercially viable product, estimating the
resulting net cash flows from the sale of the products resulting from the
completion of the IPR&D and discounting the net cash flows back to their
present value at rates ranging from 25% to 30%. The excess of the purchase
price over tangible and identifiable intangible assets acquired and liabilities
assumed has been recorded as goodwill. The developed technology, trademarks and
trade names, workforce-in-place and goodwill are being amortized over estimated
useful lives ranging from 4 to 7 years.

   Capitalized transaction related costs include direct transaction costs
primarily for financial advisory and legal fees totaling $2.1 million, employee
severance costs totaling $3.4 million and costs associated with terminating
certain contracts of Splash totaling $1.4 million.

   The unaudited pro forma information set forth below represents the revenues,
net income and earnings per share of the Company and Splash as if the
acquisition were effective on January 1, 1999, and includes certain pro forma
adjustments, including the adjustment of amortization expense to reflect
purchase price allocations, interest income to reflect net cash used for the
purchase and the related income tax effects of these adjustments.


<TABLE>
<CAPTION>
                                                                 Years Ended
                                                                December 31,
                                                            ---------------------
                                                               2000       1999
                                                             --------   --------
                                                            (in thousands, except
                                                               per share data)
<S>                                                         <C>        <C>
Revenue.................................................... $640,096   $640,760
Net income................................................. $ 55,192   $ 85,901
Basic earnings per common share............................ $   1.01   $   1.57
Diluted earnings per common share.......................... $   0.99   $   1.51
</TABLE>


   The unaudited pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisition been consummated at the
beginning of the period presented.

                                      45


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 3:  Balance Sheet Components


<TABLE>
<CAPTION>
                                                               December 31,
                                                            ------------------
                                                              2001      2000
                                                            --------  --------
                                                              (In thousands)
<S>                                                         <C>       <C>
Accounts receivable:
Accounts receivable........................................ $ 55,597  $ 74,436
Less reserves and allowances...............................   (1,631)   (2,430)
                                                            --------  --------
                                                            $ 53,966  $ 72,006
                                                            ========  ========
Inventories:
Raw materials.............................................. $  6,670  $ 25,928
Work in process............................................       --        --
Finished goods.............................................    2,627     1,148
                                                            --------  --------
                                                            $  9,297  $ 27,076
                                                            ========  ========
Other current assets:
Receivable from subcontract manufacturers.................. $  3,050  $ 18,911
Deferred income taxes, current portion.....................   12,966    17,695
Other......................................................    3,623     6,560
                                                            --------  --------
                                                            $ 19,639  $ 43,166
                                                            ========  ========
Property and equipment:
Land, building and improvements............................ $ 38,661  $ 28,930
Equipment and purchased software...........................   43,539    70,413
Furniture and leasehold improvements.......................   11,972    16,354
                                                            --------  --------
                                                              94,172   115,697
Less accumulated depreciation and amortization.............  (39,126)  (64,241)
                                                            --------  --------
                                                            $ 55,046  $ 51,456
                                                            ========  ========
Other assets:
Deferred income taxes, non-current portion................. $  9,621  $ 15,031
Goodwill...................................................   51,963    53,406
Other intangibles..........................................   26,200    29,432
Accumulated amortization of goodwill and intangibles.......  (15,302)   (6,560)
Other......................................................    1,215     1,640
                                                            --------  --------
                                                            $ 73,697  $ 92,949
                                                            ========  ========
Accrued and other liabilities:
Accrued compensation and benefits.......................... $ 17,451  $ 15,019
Accrued product-related obligations........................   12,108    13,427
Accrued royalty payments...................................    6,660     8,564
Other accrued liabilities..................................    9,817    13,473
                                                            --------  --------
                                                            $ 46,036  $ 50,483
                                                            ========  ========
</TABLE>


                                      46


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 4:  Short-term and Restricted Investments

   The following tables summarize the Company's available-for-sale securities:


<TABLE>
<CAPTION>
                                                    Gross      Gross
                                        Amortized Unrealized Unrealized
December 31, 2001                         Cost      Gains      Losses   Fair Value
-----------------                       --------- ---------- ---------- ----------
                                                      (In thousands)
<S>                                     <C>       <C>        <C>        <C>
Municipal Securities................... $248,955    $2,441       --      $251,396
U.S. Government Securities.............    9,050         6      (61)        8,995
                                        --------    ------      ---      --------
Total short-term....................... $258,005    $2,447      (61)     $260,391
                                        ========    ======      ===      ========
</TABLE>



<TABLE>
<CAPTION>
                                                    Gross      Gross
                                        Amortized Unrealized Unrealized
December 31, 2000                         Cost      Gains      Losses   Fair Value
-----------------                       --------- ---------- ---------- ----------
                                                      (In thousands)
<S>                                     <C>       <C>        <C>        <C>
Municipal Securities................... $254,060     $782        --      $254,842
U.S. Government Securities.............    9,911      180        --        10,091
                                        --------     ----        --      --------
Total short-term....................... $263,971     $962        --      $264,933
                                        ========     ====        ==      ========
</TABLE>


   The following table summarizes the maturities of the available-for-sale
investment securities as of December 31, 2001:


<TABLE>
<CAPTION>
                                                            Amortized Cost Fair Value
                                                            -------------- ----------
                                                                 (In thousands)
<S>                                                         <C>            <C>
Less than one year.........................................    $107,527     $108,262
Due in 1-2 years...........................................      92,793       94,305
Due in 2-3 years...........................................      57,685       57,824
                                                               --------     --------
   Total short-term and restricted investments.............    $258,005     $260,391
                                                               ========     ========
</TABLE>


   The following tables summarize the Company's hold-to-maturity securities:


<TABLE>
<CAPTION>
December 31, 2001                                                     Amortized Cost
-----------------                                                     --------------
                                                                      (In thousands)
<S>                                                                   <C>
U.S. Government Securities...........................................     40,135
</TABLE>


   The following table summarizes the maturities of the securities as of
December 31, 2001:


<TABLE>
<CAPTION>
                                                                      Amortized Cost
                                                                      --------------
                                                                      (In thousands)
<S>                                                                   <C>
Less than one year...................................................    $ 6,585
Due in 1-2 years.....................................................     33,550
                                                                         -------
Total short-term and restricted investments..........................    $40,135
                                                                         =======
</TABLE>


   In connection with its building lease arrangements, the Company has pledged
$112.1 million of securities at December 31, 2001. (See Note 6 for more
details.)

                                      47


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 5:  Long-Term Debt

   Long Term Debt consists of amounts due to the City of Foster City for
certain bonds assumed by the Company during the purchase of land (see Note 6).
The bonds payable are reduced by an assessment based on usage, made by the City
of Foster City, and vary from year to year. The total amount due on the bonds
at December 31, 2001 was $0.3 million.

Note 6:  Commitments and Contingencies

  Leases

  Off-Balance Sheet Financing--Synthetic Lease Arrangement

   In 1997, the Company purchased a 35-acre parcel of land in Foster City,
California and began development of a corporate campus. In July 1999 the
Company completed construction of a ten-story, 295,000 square foot building
funded under a lease agreement entered into in 1997 ("1997 Lease") and began
making rent payments. Also in conjunction with the 1997 Lease, the Company has
entered into a separate ground lease with the lessor of the building for
approximately 35 years. If the Company does not renew the building lease, the
ground lease converts to a market rate.

   In December 1999 the Company entered into a second agreement ("1999 Lease"
and together with the 1997 Lease, the "Leases") to lease a maximum of 543,000
square feet of additional facilities, to be constructed adjacent to the first
building discussed above. As of December 31, 2001 the lessor has funded $38.3
million of a maximum commitment of $137.0 million for the construction of the
facilities, with the portion of the committed amount actually used for
construction to be determined by the Company. Rent obligations for the
building, which will begin in January 2002, will bear a direct relationship to
the carrying cost of the commitments drawn down. Construction of the first of
the additional facilities began in January 2000 and was completed in December
2001. Further construction of additional facilities has been halted for the
time being. On January 18, 2002, the Company relinquished $93.9 million of the
original loan commitment. The total funding received under the 1999 Lease at
the time of relinquishment was $43.1 million. In connection with the lease, the
Company entered into a lease of the related parcels of land in Foster City to
the lessor of the buildings at a nominal rate and for a term of 30 years. If
the Company does not renew the building lease, the ground lease converts to a
market rate.

   Both Leases have an initial term of seven years, with options to renew
subject to certain conditions. The Company may, at its option, purchase the
facilities during or at the end of the term of the lease for the amount
expended by the respective lessor to construct the facilities ($56.8 million
for the 1997 Lease and $43.1 million for the 1999 Lease). The Company has
guaranteed to the lessors a residual value associated with the buildings equal
to approximately 82% of their funding. The Company may be liable to the lessor
for the amount of the residual guarantee if it either fails to renew the lease
or does not purchase or locate a purchaser for the leased building at the end
of the lease term. The Company is liable to the lessor for the full purchase
amount of the buildings if it defaults on its covenants ($56.8 million for the
1997 Lease and $43.1 million for the 1999 Lease). During the terms of the
Leases the Company must maintain a minimum tangible net worth. In addition, the
Company has pledged certain marketable securities, which are in proportion to
the amount drawn under each lease. Under the 1997 Lease, the pledged collateral
($72.0 million at December 31, 2001) may be withdrawn at any time, but
withdrawal results in an increase to the lease rate and the imposition of
additional financial covenant restrictions. The funds pledged under the 1999
Lease ($40.1 million at December 31, 2001) may be invested by the Company in
certain securities, however the funds are restricted as to withdrawal at all
times.

   The Company is treated as the owner of these buildings for federal income
tax purposes.

   The Company also leases office facilities in various locations in the United
States and overseas for periods ranging from two to five years, expiring
between May 2002 and August 2005.

                                      48


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following summarizes the future minimum lease payment under the
non-cancelable operating leases:


<TABLE>
<CAPTION>
   Fiscal Year                                                 (In thousands)
   -----------                                                 --------------
   <S>                                                         <C>
   2002.......................................................    $ 3,268
   2003.......................................................      2,997
   2004.......................................................      2,318
   2005.......................................................      1,161
   2006.......................................................      1,027
   Thereafter.................................................         --
                                                                  -------
      Total...................................................    $10,771
                                                                  =======
</TABLE>

--------
Note: Lease obligation related to the principal corporate facility is estimated
      and is based on current market interest rates (LIBOR) and based on
      collateralized assumptions.

   Rental expense amounted to approximately $5.6 million, $6.7 million, and
$6.6 million for the fiscal years ended 2001, 2000 and 1999, respectively.

  Purchase Commitments

   The Company sub-contracts with other companies to manufacture its products.
During the normal course of business the sub-contractors procure components
based upon orders placed by the Company. If the Company cancels all or part of
the order, they may still be liable to the sub-contractors for the cost of the
components purchased by the sub-contractors for placement in its products.

  Legal Proceedings

   The Company and certain principal officers and directors were named as
defendants in class action complaints filed in both the California Superior
Court of the County of San Mateo on December 15, 1997, and the United States
District Court for the Northern District of California on December 31, 1997 on
behalf of purchasers of the common stock of the Company during the class period
from April 10, 1997, through December 11, 1997. Additionally, in January 1999,
two class action complaints were filed, and subsequently consolidated into one
case, in the United States District Court for the Northern District of
California against Splash and certain of its officers on behalf of purchasers
of the common stock of Splash during the class period from January 7, 1997
through October 13, 1998. The complaints allege violations of securities laws
during the class period. Management believes the lawsuits are without merit.
However, due to the inherent uncertainties of litigation, the Company cannot
accurately predict the ultimate outcome of the litigation. Any unfavorable
outcome of the litigation could have an adverse impact on the Company's
financial condition and results of operations.

   On August 31, 2000, after the announcement of the merger agreement between
Splash and the Company, a class action lawsuit was filed against Splash and its
directors. The Plaintiffs, Splash and the Company agreed to enter into a
settlement agreement that would resolve all outstanding disputes and dismiss
the case with prejudice. On November 30, 2001, the Court approved the
settlement and signed the Final Judgment and Order of Dismissal. The Company
and Splash deny any wrongdoing whatsoever, but agreed to the settlement to
eliminate the burden and expense of further litigation.

   Over the past five years, Mr. Jan R. Coyle, an individual living in Nevada,
has repeatedly requested that the Company buy technology allegedly invented by
his company, Kolbet Labs. In December 2001, Mr. Coyle

                                      49


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

threatened to sue the Company and all of its customers for infringing a
purportedly soon to be issued patent and for misappropriating his trade
secrets. The Company believes that Mr. Coyle's threats are without merit and
that it has no liability under claims threatened by Mr. Coyle. On December 11,
2001, the Company filed a declaratory relief action in the United States
District Court for the Northern District of California, seeking a declaration
from the court that the Company and its customers have not breached any
nondisclosure agreement with Mr. Coyle or Kolbet Labs, and that it has not
infringed any patent claims or misappropriated any trade secrets belonging to
Mr. Coyle or Kolbet Labs through its sale of Fiery, Splash or EDOX print
controllers. The Company also seeks an injunction enjoining both Mr. Coyle and
Kolbet Labs from bringing or threatening to bring a lawsuit against the
Company, its suppliers, vendors, customers and users of its products for breach
of contract and misappropriation of trade secrets.

   In addition, the Company is involved from time to time in litigation
relating to claims arising in the normal course of its business. The Company
believes that the ultimate resolution of such claims will not materially affect
the Company's business or financial condition

Note 7:  Income Taxes

   The provision (benefit) for income taxes is summarized as follows:


<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                   --------------------------
                                                    2001     2000      1999
                                                   -------  -------  --------
                                                         (In thousands)
 <S>                                               <C>      <C>      <C>
 Current:
    U.S. Federal.................................. $ 6,150  $34,451  $ 51,085
    State.........................................   1,096    4,197     8,044
    Foreign.......................................   4,047    1,852     1,463
                                                   -------  -------  --------
        Total current.............................  11,293   40,500    60,592
 Deferred:
    U.S. Federal..................................  13,092   (2,469)  (13,265)
    State.........................................  (2,950)    (549)     (408)
    Foreign.......................................      (3)     (21)       (5)
                                                   -------  -------  --------
        Total deferred............................  10,139   (3,039)  (13,678)
                                                   -------  -------  --------
        Total provision for income taxes.......... $21,432  $37,461  $ 46,914
                                                   =======  =======  ========
</TABLE>


   The tax effects of temporary differences that give rise to deferred tax
assets (liabilities) are as follows:


<TABLE>
<CAPTION>
                                                                December 31,
                                                              ----------------
                                                               2001     2000
                                                              -------  -------
                                                               (In thousands)
  <S>                                                         <C>      <C>
  Inventory reserves......................................... $ 4,611  $ 7,209
  Other reserves and accruals................................   1,487    4,155
  Accrued compensation and benefits..........................   1,818      318
  Amortization of intangibles................................   2,039    1,276
  Deferred tax on intercompany transactions..................   7,914   10,117
  Unremitted earnings of foreign subsidiaries................  (7,812)      --
  Net operating loss carryforwards...........................   2,133    4,847
  Tax credit carryforwards...................................   6,326      964
  Manufacturing reserves.....................................   2,314    1,873
  Other......................................................   1,757    1,967
                                                              -------  -------
  Total deferred tax assets.................................. $22,587  $32,726
                                                              =======  =======
</TABLE>


                                      50


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A reconciliation between the income tax provision computed at the federal
statutory rate and the actual tax provision is as follows:


<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                        -------------------------------------------
                                             2001           2000           1999
                                        -------------  -------------  -------------
                                           $      %       $      %       $      %
                                        -------  ----  -------  ----  -------  ----
                                                       (In thousands)
<S>                                     <C>      <C>   <C>      <C>   <C>      <C>
Tax expense at federal statutory rate.. $21,130  35.0  $32,137  35.0  $49,769  35.0
State income taxes, net of federal
  benefit..............................   1,732   2.9    4,798   5.2    5,502   3.9
Tax-exempt interest income.............  (3,364) (5.6)  (4,480) (4.9)  (3,601) (2.5)
Research and development credits.......  (2,521) (4.2)  (3,934) (4.3)  (2,725) (1.9)
FSC benefit............................     (63) (0.1)  (2,148) (2.3)  (3,360) (2.4)
Foreign rate differential..............   2,755   4.6    2,546   2.8       --    --
In-process technology and amortization
  of goodwill..........................   2,372   3.9    7,698   8.4       --    --
Other..................................    (609) (1.0)     844   0.9    1,329   0.9
                                        -------  ----  -------  ----  -------  ----
                                        $21,432  35.5  $37,461  40.8  $46,914  33.0
                                        =======  ====  =======  ====  =======  ====
</TABLE>


   Income before income taxes includes $35.5 million, $0.3 million and $2.0
million of income relating to non-U.S. operations for 2001, 2000 and 1999,
respectively.

   The company has approximately $6.1 million and $8.2 million of loss and
credit carryforwards at December 31, 2001. These losses and credits will expire
between 2004 and 2019.

Note 8:  Earnings Per Share

   The following table presents a reconciliation of basic and diluted earnings
per share for the three years in the period ended December 31, 2001:


<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                     ------------------------
                                                       2001    2000    1999
                                                     -------  ------- -------
                                                      (In thousands, except
                                                         per share data)
   <S>                                               <C>      <C>     <C>
   Net income available to common shareholders...... $38,940  $54,358 $95,283
                                                     =======  ======= =======
   Shares
      Basic shares..................................  53,468   54,649  54,853
      Effect of Dilutive Securities.................   1,137    1,334   2,110
                                                     -------  ------- -------
   Diluted shares...................................  54,605   55,983  56,963
                                                     =======  ======= =======
   Earnings per common share
      Basic EPS..................................... $  0.73  $  0.99 $  1.74
      Diluted EPS................................... $  0.71  $  0.97 $  1.67
</TABLE>


   Options to purchase 5,715,912, 4,729,988, and 349,791 shares of common stock
outstanding as of December 31, 2001, 2000, and 1999, respectively, were not
included in the computations of diluted EPS because the options' exercise
prices were greater than the average market price of the common shares for the
years then ended.

                                      51


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 9:  Employee Benefit Plans

  Stock Option Plans

   As of December 31, 2001, the Company has six stock-based compensation plans,
described below. The Company applies APB 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for options granted in
2001, 2000 and 1999 under the Company's option plans been determined based on
the fair value at the grant dates as prescribed by SFAS 123, the Company's net
income and pro forma net income per share would have been as follows:


<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                      ------------------------
                                                        2001    2000    1999
                                                      -------  ------- -------
                                                       (In thousands, except
                                                         per share amounts)
  <S>                                     <C>         <C>      <C>     <C>
  Net income............................. As reported $38,940  $54,358 $95,283
                                          Pro forma   $20,276  $ 4,266 $61,410

  Earnings per basic common share........ As reported $  0.73  $  0.99 $  1.74
                                          Pro forma   $  0.38  $  0.08 $  1.12

  Earnings per diluted common share...... As reported $  0.71  $  0.97 $  1.67
                                          Pro forma   $  0.37  $  0.08 $  1.08
</TABLE>


   The Company has five stock option plans: the 1989 Stock Plan (a "Predecessor
Plan"), the 1990 Stock Plan (a "Predecessor Plan"), the MGI 1985 Nonqualified
Stock Option Plan (a "Predecessor Plan"), the Splash 1996 Stock Option Plan (a
"Predecessor Plan") and the 1999 Equity Incentive Plan (a "Stock Plan"). The
Company does not grant any options under the Predecessor Plans, however all
outstanding options under the Predecessor Plans continue to be governed by the
terms and conditions of the existing option agreements for those grants. Under
the Stock Plans, the exercise price of each option equals the market price of
the Company's stock on the date of grant and an option's maximum term is 10
years. Options are granted periodically throughout the year and generally vest
ratably over two to four years. At December 31, 2001, approximately 4.5 million
shares were available for future grants to employees, directors or consultants.

   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, the attribution method with respect to
graded vesting and the following weighted-average assumptions:


<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                        -------------------------------------------
Black Scholes Assumptions & Fair Value      2001           2000           1999
--------------------------------------  -------------  -------------  -------------
<S>                                     <C>            <C>            <C>
Expected Volatility....................     67.6%          88.0%          76.3%
Dividend Yield.........................      0.0%           0.0%           0.0%
Risk Free Interest Rate................ 2.28% to 4.60% 4.91% to 5.11% 5.95% to 6.44%
Weighted Average Expected Option Term..   4.0 years      4.0 years      4.5 years
Weighted Average Fair Value of Options
  Granted..............................     $11.46         $21.96         $19.35
</TABLE>


                                      52


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A summary of the status of the Company's stock option activity is presented
below:


<TABLE>
<CAPTION>
                                           Years Ended December 31,
                              --------------------------------------------------
                                    2001             2000             1999
                              ---------------- ---------------- ----------------
                                      Average          Average          Average
(In thousands, except                 Exercise         Exercise         Exercise
exercise price)               Shares   Price   Shares   Price   Shares   Price
---------------------         ------  -------- ------  -------- ------  --------
<S>                           <C>     <C>      <C>     <C>      <C>     <C>
Beginning of Year............ 12,903   $28.31   7,335   $27.73   6,734   $21.04
Granted......................  1,344    16.86   9,045    27.92   2,955    36.81
Exercised....................   (975)   14.88  (1,441)   12.60  (1,738)   16.06
Forfeited.................... (3,896)   40.57  (2,036)   35.63    (616)   31.09
                              ------   ------  ------   ------  ------   ------
End of Year..................  9,376   $22.96  12,903   $28.31   7,335   $27.73
                              ======   ======  ======   ======  ======   ======
</TABLE>


   The following table summarizes information about stock options outstanding
at December 31, 2001:


<TABLE>
<CAPTION>
                             Options Outstanding                   Options Exercisable
                 -------------------------------------------- -----------------------------
Range of             Number     Weighted Avg.  Weighted Avg.      Number     Weighted Avg.
Exercise Prices   Outstanding   Remaining Life Exercise Price  Exercisable   Exercise Price
---------------  -------------- -------------- -------------- -------------- --------------
                 (in thousands)                               (in thousands)
<S>              <C>            <C>            <C>            <C>            <C>
$0.20 to $11.94        406           6.26          $ 8.83           209          $ 5.94
$11.95 to $12.81     2,296           8.66          $12.81           533          $12.80
$12.82 to $14.95       976           8.26          $13.83           271          $13.89
$14.96 to $21.38     1,028           7.75          $18.37           497          $16.87
$21.39 to $22.31     1,368           8.48          $22.30           787          $22.31
$22.32 to $25.63       683           6.27          $24.79           448          $25.53
$25.64 to $33.81     1,396           7.16          $33.51           901          $33.58
$33.82 to $51.41       972           6.42          $44.51           778          $45.04
$51.41 to $57.75       245           6.41          $53.75           206          $53.50
$59.88 to $59.88         6           7.68          $59.88             3          $59.88
                     -----           ----          ------         -----          ------
$0.01 to $59.88      9,376           7.70          $23.08         4,633          $27.13
                     =====                                        =====
</TABLE>


  Stock Option Repricing

   During the four quarter of 2001, the Company authorized the implementation
of an option exchange program pursuant to which our current employees would
have the opportunity to exchange their outstanding options to purchase shares
of our common stock for new stock option grants to be made to them at a later
date. Outstanding stock options granted between December 1, 1999 and May 31,
2000 under our 1990 Plan or our 1999 Plan will be exchanged for new replacement
options to be granted under our 1999 Plan during the second quarter of 2002.
The number of shares of Common Stock subject to each new option will be equal
to two-thirds of the number of shares of Common Stock subject to the tendered
option. Options for approximately 2,590,825 shares of common stock were
eligible for participation in the option exchange program. At the conclusion of
the option exchange program on October 12, 2001, the Company accepted for
exchange and cancelled options to purchase an aggregate of 2,500,143 shares of
our common stock. As a result, we expect to issue new replacement options to
purchase approximately 1,666,762 shares of common stock in 2002 in exchange for
those cancelled options. However, no replacement options will be granted to any
employee whose options were cancelled pursuant to the option exchange program,
unless that individual continues in our employ through the grant date of the
replacement option.

                                      53


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Employee Stock Purchase Plan

   In 2001, the Company established an Employee Stock Purchase Plan which
allows qualified employees (as defined) to purchase designated shares of the
Company's common stock at a price equal to 85% of the closing price on
specified dates. The Company has initially authorized 400,000 shares for
purchase under this plan, with an additional 0.5% of the common shares
outstanding on the first day of each year being automatically added to the
shares available for issue under this plan. The Company issued 217,912 shares
during 2001 at an average purchase price of $18.02.

  Employee 401(k) Plan

   The Company sponsors a 401(k) Savings Plan (the "401(k) Plan") to provide
retirement and incidental benefits for its employees. Employees may contribute
from 1% to 20% of their annual compensation to the Plan, limited to a maximum
annual amount as set periodically by the Internal Revenue Service. The Company
currently matches 50 % of the employee contributions, up to a maximum of the
first 4% of the employee's compensation contributed to the plan, subject to IRS
limitations. The Company match is annually determined by the Board of
Directors. All matching contributions vest over four years starting with the
hire date of the individual employee. Company matching contributions to the
Plan totaled $1.0 million in 2001. The employee and the Company's contributions
are cash contributions invested in mutual funds managed by an independent fund
manager, or in self-directed retirement plans. The fund manager or the employee
may invest in the Company's common stock.

Note 10:  Information Concerning Business Segments and Major Customers

  Information about Products and Services

   The Company operates in a single industry segment, technology for
high-quality printing in short production runs. The Company does not have
separate operating segments for which discrete financial statements are
prepared. The Company's management makes operating decisions and assesses
performance based on primarily product revenues and related gross margins.

   The following is a breakdown of revenues for the years ended December 31,
2001, 2000 and 1999 by product category:


<TABLE>
<CAPTION>
                                                     2001     2000     1999
                                                    Revenue  Revenue  Revenue
                                                    -------- -------- --------
                                                          (In thousands)
  <S>                                               <C>      <C>      <C>
  Stand-alone Servers Connecting to Digital Color
    Copiers........................................ $215,155 $268,436 $244,028
  Embedded Desktop Controllers, Bundled Color
    Solutions & Chipset Solutions..................  151,499  129,277  149,899
  Controllers for Digital Black and White Solutions   95,522  130,780  121,071
  Spares, Licensing & Other misc. sources..........   55,432   59,956   55,754
                                                    -------- -------- --------
  Total Revenue.................................... $517,608 $588,449 $570,752
                                                    ======== ======== ========
</TABLE>


  Information about Geographic Areas

   The Company's sales originated in the United States, The Netherlands and
Japan. Shipments to some of the Company's OEM partners are made to centralized
purchasing and manufacturing locations, which in turn sell through to other
locations. As a result of these factors, the Company believes that sales to
certain geographic locations might be higher or lower, as accurate data is
difficult to obtain.

                                      54


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following is a breakdown of revenues by shipment destination for the
years ended 2001, 2000 and 1999, respectively:


<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                                    --------------------------
                                                      2001     2000     1999
                                                    -------- -------- --------
                                                          (In thousands)
  <S>                                               <C>      <C>      <C>
  North America.................................... $256,782 $291,679 $277,997
  Europe...........................................  181,605  191,403  182,602
  Japan............................................   61,459   85,983   90,781
  Rest of World....................................   17,762   19,384   19,372
                                                    -------- -------- --------
                                                    $517,608 $588,449 $570,752
                                                    ======== ======== ========
</TABLE>


  Information about Major Customers

   Four customers, with total revenues greater than 10%, accounted for
approximately 32%, 26%, 11% and 10% of revenue in 2001. Three customers
accounted for approximately 36%, 23% and 11% of revenue in 2000. Two customers
accounted for 36% and 23% of revenue in 1999. Three customers, with accounts
receivable balances greater than 10%, in aggregate accounted for approximately
72%, 79% and 69% of the accounts receivable balance as of December 31 in 2001,
2000 and 1999, respectively.

                                      55


<PAGE>

 
                      REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Electronics for Imaging, Inc.

   In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Electronics
for Imaging, Inc. and its subsidiariesat December 31, 2001 and December 31,
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
January 25, 2002


                                      56


<PAGE>

                 QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
                                  (Unaudited)
                     (In thousands, except per share data)

   The following table presents the Company's operating results for each of the
eight quarters in the two-year period ended December 31, 2001. The information
for each of these quarters is unaudited but has been prepared on the same basis
as the audited consolidated financial statements appearing elsewhere in this
Annual Report. In the opinion of management, all necessary adjustments
(consisting only of normal recurring adjustments) have been included to present
fairly the unaudited quarterly results when read in conjunction with the
audited consolidated financial statements of the Company and the notes thereto
appearing in this Annual Report. These operating results are not necessarily
indicative of the results for any future period.


<TABLE>
<CAPTION>
2001:                                                          Q1       Q2       Q3       Q4
-----                                                       -------- -------- -------- --------
<S>                                                         <C>      <C>      <C>      <C>
Revenue.................................................... $141,093 $143,936 $127,024 $105,555
Gross profit...............................................   62,748   64,222   58,972   49,551
Income from operations.....................................   11,026   14,132   12,422    5,324
Net income.................................................    9,897   11,664   11,100    6,281
                                                            ======== ======== ======== ========
Net income per basic common share.......................... $   0.19 $   0.22 $   0.21 $   0.11
Net income per diluted common share........................ $   0.18 $   0.21 $   0.20 $   0.11
Revenue by product.........................................
   Stand-alone Servers Connecting to Digital Copiers....... $ 56,824 $ 56,248 $ 50,879 $ 51,203
   Embedded Desktop Controllers, Bundled Color Solutions &
     Chipset Solutions.....................................   30,074   53,930   39,750   27,746
   Controllers for Digital Black and White Solutions.......   40,769   19,718   20,741   14,294
   Spares, Licensing & other misc. sources.................   13,426   14,040   15,654   12,312
                                                            -------- -------- -------- --------
Total revenue.............................................. $141,093 $143,936 $127,024 $105,555
                                                            ======== ======== ======== ========
Shipments by geographic area
   North America........................................... $ 69,457 $ 64,991 $ 67,915 $ 54,420
   Europe..................................................   47,563   58,910   38,609   36,522
   Japan...................................................   19,566   15,260   15,647   10,986
   Rest of World...........................................    4,507    4,775    4,853    3,627
                                                            -------- -------- -------- --------
Total...................................................... $141,093 $143,936 $127,024 $105,555
                                                            ======== ======== ======== ========
</TABLE>


                                      57


<PAGE>


<TABLE>
<CAPTION>

2000:                                                          Q1       Q2       Q3       Q4
-----                                                       -------- -------- -------- --------
<S>                                                         <C>      <C>      <C>      <C>
Revenue.................................................... $151,515 $152,176 $153,182 $131,576
Gross profit...............................................   73,612   72,943   73,499   57,243
Income from operations.....................................   32,444   28,452   24,974  (15,601)
Net income.................................................   25,423   22,832   20,045  (13,942)
                                                            ======== ======== ======== ========
Net income per basic common share.......................... $   0.45 $   0.41 $   0.37 $  (0.26)
Net income per diluted common share........................ $   0.44 $   0.40 $   0.37 $  (0.26)
Revenue by product.........................................
   Stand-alone Servers Connecting to Digital Copiers....... $ 73,747 $ 76,855 $ 67,666 $ 50,168
   Embedded Desktop Controllers, Bundled Color Solutions &
     Chipset Solutions.....................................   33,214   23,783   33,801   38,480
   Controllers for Digital Black and White Solutions.......   26,828   36,823   37,052   30,078
   Spares, Licensing & other misc. sources.................   17,726   14,715   14,663   12,850
                                                            -------- -------- -------- --------
Total revenue.............................................. $151,515 $152,176 $153,182 $131,576
                                                            ======== ======== ======== ========
Shipments by geographic area
   North America........................................... $ 73,935 $ 71,755 $ 79,855 $ 66,134
   Europe..................................................   52,849   57,185   43,496   37,873
   Japan...................................................   18,727   19,354   24,548   23,354
   Rest of World...........................................    6,004    3,882    5,283    4,215
                                                            -------- -------- -------- --------
Total...................................................... $151,515 $152,176 $153,182 $131,576
                                                            ======== ======== ======== ========
</TABLE>



                                      58


<PAGE>


                                   PART III


Item 9:  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

   None.


Item 10:  Directors and Executive Officers of the Registrant

   Information regarding directors of the Company is incorporated by reference
from the information contained under the caption "Election of Directors" in the
Company's Proxy Statement for the Company's 2002 Annual Meeting of Stockholders
(the "2002 Proxy Statement"). Information regarding current executive officers
of the Registrant is incorporated by reference from information contained under
the caption "Executive Officers" in the Company's 2002 Proxy Statement.
Information regarding Section 16 reporting compliance is incorporated by
reference from information contained under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 2002 Proxy
Statement.


Item 11:  Executive Compensation

   The information required by this item is incorporated by reference from the
information contained under the caption "Executive Compensation" in the
Company's 2002 Proxy Statement.


Item 12:  Security Ownership of Certain Beneficial Owners and Management

   The information required by this item is incorporated by reference from the
information contained under the caption "Security Ownership" in the Company's
2002 Proxy Statement.


Item 13:  Certain Relationships and Related Transactions

   The information required by this item is incorporated by reference from the
information contained under the caption "Related Transactions" in the Company's
2002 Proxy Statement.


                                      59


<PAGE>


                                    PART IV


Item 14:  Exhibits, Financial Statement Schedules, and Reports on Form 10-K.

(a) Documents Filed as Part of Form 10-K

   (1) Index to Financial Statements

       The Financial Statements required by this item are submitted in Item 8
       of this report as follows:

       Report of Independent Accountants.
       Consolidated Balance Sheets at December 31, 2001 and 2000
       Consolidated Statements of Income for the three years ended December 31,
         2001
       Consolidated Statements of Stockholders' Equity for the three years
         ended December 31, 2001
       Consolidated Statements of Cash Flows for the three years ended December
         31, 2001

       Notes to Consolidated Financial Statements

   (2) Index to Financial Statement Schedule

 
      Schedule II--Valuation and Qualifying Accounts

      Report of Independent Accountants on Financial Statement Schedule

       (All other schedules are omitted because of the absence of conditions
       under which they are required or because the necessary information is
       provided in the consolidated financial statements or notes thereto.)

   (3) Exhibits

Exhibits


<TABLE>
<CAPTION>
Exhibit No.                                         Description
-----------                                         -----------
<C>         <S>
    2.1     Agreement and Plan of Merger, dated as of August 30, 2000, by and among the Company,
            Vancouver Acquisition Corp. and Splash Technology Holdings, Inc. (7)

    2.2     Amendment No. 1, dated as of October 19, 2000, to the Agreement and Plan of Merger, dated as
            of August 30, 2000, by and among the Company, Vancouver Acquisition Corp. and Splash
            Technology Holdings, Inc. (8)

    2.3     Agreement and Plan of Merger and Reorganization, dated as of July 14, 1999, among the
            Company, Redwood Acquisition Corp. and Management Graphics, Inc. (5)

    3.1     Amended and Restated Certificate of Incorporation. (2)

    3.2     Bylaws as amended. (1)

    4.1     See Exhibit 3.1

    4.2     Specimen Common Stock certificate of the Company. (1)

   10.1+    License Agreement, dated as of February 9, 1990, between the Company and the Massachusetts
            Institute of Technology. (1)

   10.2     Amendment to License Agreement dated December 21, 1990, between the Company and the
            Massachusetts Institute of Technology. (1)

   10.3     Amendment to License Agreement dated May 29, 1991 and March 19, 1991, by and between the
            Company and the Massachusetts Institute of Technology. (1)

   10.4+    Third Amendment to License Agreement dated June 1, 1992, by and between the Company and
            the Massachusetts Institute of Technology. (1)
</TABLE>


                                      60


<PAGE>


<TABLE>
<CAPTION>
Exhibit No.                                          Description
-----------                                          -----------
<C>         <S>
  10.5      First Amendment to License Agreement dated November 19, 1990, by and between the Company
            and the Massachusetts Institute of Technology. (11)

  10.6++    Agreement dated December 6, 2000, by and between Adobe Systems Incorporated and the
            Company. (11)

  10.7**    1989 Stock Plan of the Company. (1)

  10.8**    1990 Stock Plan of the Company. (1)

  10.9**    Management Graphics, Inc. 1985 Nonqualified Stock Option Plan. (9)

  10.10**   The 1999 Equity Incentive Plan. (6)

  10.11**   Form of Indemnification Agreement. (1)

  10.12**   Employment Agreement dated March 8, 2000, by and between Fred Rosenzweig and the
            Company. (9)

  10.13**   Employment Agreement dated April 13, 2000, by and between Joseph Cutts and the Company. (3)

  10.14**   Employment Agreement dated March 8, 2000, by and between Guy Gecht and the Company. (9)

  10.15**   Master Lease and Open End Mortgages dated as of July 18, 1997 by and between the Company
            and FBTC Leasing Corp. for the lease financing of the Company's corporate headquarters
            building to be built in Foster City, California. (4)

  10.16     Lease Financing of Properties Located in Foster City, California, dated as of January 18, 2000
            among the Company, Societe Generale Financial Corporation and Societe Generale. (9)

  10.17**   2000 Employee Stock Purchase Plan. (3)

  10.18**   Offer to Exchange dated September 17, 2001. (10)

  10.19**   Splash Technology Holdings, Inc. 1996 Stock Option Plan. (12)

  10.20++   Fourth Amendment to License Agreement dated October 17, 1994, by and between the Company
            and the Massachusetts Institute of Technology. (11)

  10.21++   Fifth Amendment to License Agreement dated June 1, 2000, by and between the Company and the
            Massachusetts Institute of Technology. (11)

  21.1      List of Subsidiaries.

  23.1      Consent of PricewaterhouseCoopers LLP.

  24.2      Power of Attorney (see signature page).
</TABLE>

--------
  ** Items that are management contracts or compensatory plans or arrangements
     required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.

   + The Company has received confidential treatment with respect to portions
     of these documents.

  ++ The Company has requested confidential treatment with respect to portions
     of these documents.

 (1) Filed as an exhibit to the Company's Registration Statement on Form S-1
     (No. 33-50966) and incorporated herein by reference.

 (2) Filed as an exhibit to the Company's Registration Statement on Form S-1
     (File No. 33-57382) and incorporated herein by reference.

 (3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 2000 (File No. 000-18805) and incorporated herein
     by reference.

                                      61


<PAGE>

 (4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 1997 (File No. 0-18805) and incorporated herein by
     reference.

 (5) Filed as an exhibit to the Company's Report of Unscheduled Material Events
     on Form 8-K on September 8, 1999 (File No. 0-18805) and incorporated
     herein by reference.

 (6) Filed as an exhibit to the Company's Registration Statement on Form S-8
     (File No. 333-88135) and incorporated herein by reference.

 (7) Filed as exhibit (d) (1) to the Company's Schedule TO-T on September 14,
     2000 is incorporated herein by reference.

 (8) Filed as exhibit (d) (5) to the Company's TO/A Number 3 on October 20,
     2000 is incorporated herein by reference.

 (9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
     year ended December 31, 2000 (File No. 000-18805) and incorporated herein
     by reference.

(10) Filed as an exhibit (a) (1) to the Company's Schedule TO-I on September
     17, 2001 and incorporated herein by reference.

(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
     year ended December 31, 2001 (File No. 000-18805) and incorporated herein
     by reference.

(12) Filed as an exhibit to the Company's Registration Statement on Form S-8
     (File No. 333-49298) and incorporated herein by reference.

(b) Reports on Form 8-K

   None.

(c) List of Exhibits

   See Item 14 (a).

(d) Consolidated Financial Statement Schedule II for the years ended December
    31, 2000, 2000 and 1999, respectively.

   See Page 47 of this Annual Report on Form 10-K.

                                      62


<PAGE>

                         ELECTRONICS FOR IMAGING, INC.

                                  SCHEDULE II

                       Valuation and Qualifying Accounts


<TABLE>
<CAPTION>
                                                  Balance at Charged to Charged to/             Balance
                                                  beginning  costs and  from other              at end
Description                                       of period   expenses   accounts   Deductions of period
-----------                                       ---------- ---------- ----------- ---------- ---------
                                                                      (In thousands)
<S>                                               <C>        <C>        <C>         <C>        <C>
Year Ended December 31, 2001
Allowance for doubtful accounts and sales-related
  reserves.......................................   $2,430      $386       $ --      $(1,185)   $1,631
                                                    ======      ====       ====      =======    ======

Year Ended December 31, 2000
Allowance for doubtful accounts and sales-related
  reserves.......................................   $1,266      $979       $450(1)   $  (265)   $2,430
                                                    ======      ====       ====      =======    ======

Year Ended December 31, 1999
Allowance for doubtful accounts and sales-related
  reserves.......................................   $1,697      $200       $ --      $  (631)   $1,266
                                                    ======      ====       ====      =======    ======
</TABLE>

--------
(1) Bad debt reserve received through acquisition of Splash Technology
    Holdings, Inc.--$173, and returned goods not previously included in
    allowance account--$277.

                                      63


<PAGE>


                     Report of Independent Accountants on
                         Financial Statement Schedule

To the Board of Directors and Stockholders
of Electronics for Imaging, Inc.

Our audits of the consolidatedfinancial statements referred to in our report
dated January 25, 2002 appearing in this Annual Report on Form 10-K of
Electronics for Imaging, Inc. also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
January 25, 2002


                                      64


<PAGE>


                                  SIGNATURES

   Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

March 27, 2002
                                              ELECTRONICS FOR IMAGING, INC.

                                              By:         /s/  GUY GECHT
                                                   -----------------------------
                                                     Guy Gecht Chief Executive
                                                              Officer

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Guy Gecht and Joseph Cutts jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to the Form 10-K Annual
Report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

            Name                          Title                  Date
            ----                          -----                  ----

             /s/              Chief Executive Officer       March 27, 2002
-----------------------------   (Principal Executive
          Guy Gecht             Officer)

             /s/              President and Chief Operating March 27, 2002
-----------------------------   Officer (Principal
       Fred Rosenweig           Operating Officer)

             /s/              Chief Financial Officer and   March 27, 2002
-----------------------------   Corporate Secretary
        Joseph Cutts            (Principal Financial and
                                Accounting Officer)

             /s/              Director                      March 27, 2002
-----------------------------
         Gill Cogan

             /s/              Director                      March 27, 2002
-----------------------------
      Jean-Louis Gassee

             /s/              Director                      March 27, 2002
-----------------------------
         Dan Maydan

             /s/              Director                      March 27, 2002
-----------------------------
      Thomas Unterberg

             /s/              Director                      March 27, 2002
-----------------------------
       James S. Greene

                                      65


<PAGE>


                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit No.                                          Description
-----------                                          -----------
<C>         <S>
   2.1      Agreement and Plan of Merger, dated as of August 30, 2000, by and among the Company,
            Vancouver Acquisition Corp. and Splash Technology Holdings, Inc. (7)

   2.2      Amendment No. 1, dated as of October 19, 2000, to the Agreement and Plan of Merger, dated as
            of August 30, 2000, by and among the Company, Vancouver Acquisition Corp. and Splash
            Technology Holdings, Inc. (8)

   2.3      Agreement and Plan of Merger and Reorganization, dated as of July 14, 1999, among the
            Company, Redwood Acquisition Corp. and Management Graphics, Inc. (5)

   3.1      Amended and Restated Certificate of Incorporation. (2)

   3.2      Bylaws as amended. (1)

   4.1      See Exhibit 3.1

   4.2      Specimen Common Stock certificate of the Company. (1)

  10.1+     License Agreement, dated as of February 9, 1990, between the Company and the Massachusetts
            Institute of Technology. (1)

  10.2      Amendment to License Agreement dated December 21, 1990, between the Company and the
            Massachusetts Institute of Technology. (1)

  10.3      Amendment to License Agreement dated May 29, 1991 and March 19, 1991, by and between the
            Company and the Massachusetts Institute of Technology. (1)

  10.4+     Third Amendment to License Agreement dated June 1, 1992, by and between the Company and
            the Massachusetts Institute of Technology. (1)
  10.5      First Amendment to License Agreement dated November 19, 1990, by and between the Company
            and the Massachusetts Institute of Technology. (11)

  10.6++    Agreement dated December 6, 2000, by and between Adobe Systems Incorporated and the
            Company. (11)

  10.7**    1989 Stock Plan of the Company. (1)

  10.8**    1990 Stock Plan of the Company. (1)

  10.9**    Management Graphics, Inc. 1985 Nonqualified Stock Option Plan. (9)

  10.10**   The 1999 Equity Incentive Plan. (6)

  10.11**   Form of Indemnification Agreement. (1)

  10.12**   Employment Agreement dated March 8, 2000, by and between Fred Rosenzweig and the
            Company. (9)

  10.13**   Employment Agreement dated April 13, 2000, by and between Joseph Cutts and the Company. (3)

  10.14**   Employment Agreement dated March 8, 2000, by and between Guy Gecht and the Company. (9)

  10.15**   Master Lease and Open End Mortgages dated as of July 18, 1997 by and between the Company
            and FBTC Leasing Corp. for the lease financing of the Company's corporate headquarters
            building to be built in Foster City, California. (4)

  10.16     Lease Financing of Properties Located in Foster City, California, dated as of January 18, 2000
            among the Company, Societe Generale Financial Corporation and Societe Generale. (9)

  10.17**   2000 Employee Stock Purchase Plan. (3)

  10.18**   Offer to Exchange dated September 17, 2001. (10)
</TABLE>



<PAGE>


<TABLE>
<CAPTION>
Exhibit No.                                         Description
-----------                                         -----------
<C>         <S>

  10.19**   Splash Technology Holdings, Inc. 1996 Stock Option Plan. (12)

  10.20++   Fourth Amendment to License Agreement dated October 17, 1994, by and between the Company
            and the Massachusetts Institute of Technology. (11)

  10.21++   Fifth Amendment to License Agreement dated June 1, 2000, by and between the Company and the
            Massachusetts Institute of Technology. (11)

  21.1      List of Subsidiaries.

  23.1      Consent of PricewaterhouseCoopers LLP.

  24.2      Power of Attorney (see signature page).
</TABLE>

--------
  ** Items that are management contracts or compensatory plans or arrangements
     required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K.

   + The Company has received confidential treatment with respect to portions
     of these documents.

  ++ The Company has requested confidential treatment with respect to portions
     of these documents.

 (1) Filed as an exhibit to the Company's Registration Statement on Form S-1
     (No. 33-50966) and incorporated herein by reference.

 (2) Filed as an exhibit to the Company's Registration Statement on Form S-1
     (File No. 33-57382) and incorporated herein by reference.

 (3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 2000 (File No. 000-18805) and incorporated herein
     by reference.

 (4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 1997 (File No. 0-18805) and incorporated herein by
     reference.

 (5) Filed as an exhibit to the Company's Report of Unscheduled Material Events
     on Form 8-K on September 8, 1999 (File No. 0-18805) and incorporated
     herein by reference.

 (6) Filed as an exhibit to the Company's Registration Statement on Form S-8
     (File No. 333-88135) and incorporated herein by reference.

 (7) Filed as exhibit (d) (1) to the Company's Schedule TO-T on September 14,
     2000 is incorporated herein by reference.

 (8) Filed as exhibit (d) (5) to the Company's TO/A Number 3 on October 20,
     2000 is incorporated herein by reference.

 (9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
     year ended December 31, 2000 (File No. 000-18805) and incorporated herein
     by reference.

(10) Filed as an exhibit (a) (1) to the Company's Schedule TO-I on September
     17, 2001 and incorporated herein by reference.

(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
     year ended December 31, 2001 (File No. 000-18805) and incorporated herein
     by reference.

(12) Filed as an exhibit to the Company's Registration Statement on Form S-8
     (File No. 333-49298) and incorporated herein by reference.





<PAGE>

                                                                    Exhibit 21.1

                                EFI Subsidiaries*


<TABLE>
<CAPTION>

Name, Address                                        Jurisdiction of Organization       Doing Business As**
<S>                                                  <C>                                <C>
Electronics for Imaging Australia Pty Ltd            Australia
26 Cunningham Street
North Sydney NSW 2060
Australia
Incorporation Date:  March 5, 1997


EFI Brazil LTDA                                      Brazil                             Electronics for
Av. Ayrton Senna                                                                        Imaging do Brazil
3000 Bloco2-Sala
412 Edificio via Purque Offices
Barra da Tijuca
Rio da Janiero
RJ CEP 22775-001


EFI (Canada), Inc.                                   Canada
Box 25
Commerce Court West
Toronto, Ontario, Canada  M5L 1A9


Electronics for Imaging, International               Cayman Islands
PW Corporate Services (Cayman) Ltd
PO  Box 258
First Home Tower
British American Centre
George Town
Grand Cayman, Cayman Islands


Tidenet, Inc.                                        Delaware
Inactive


Electronics for Imaging France SARL                  France                             EPLI
Immeuble Atria
5, Place des Marseillais
94227 Charenton-le-Pont Cedex


Electronics for Imaging GmbH                         Germany                            EFI Deutschland
Kaiserswerther Strasse 115
D-40880 Ratingen
Germany


EFI Ireland Imaging Solutions Investment
Company Ltd                                          Ireland
Harcourt Centre
Harcourt Street
Dublin 2
Ireland
</TABLE>



<PAGE>

<TABLE>
<CAPTION>

<S>                                                  <C>                                <C>
Electronics for Imaging (Israel) Ltd                 Israel
Inactive


Electronics for Imaging Italia SRL                   Italy
Centro Direzionale
 Milano Fiori
Strada 6, Palazzo E3
20090 Assago (Milano)
Italy


EFI KK                                               Japan                              Electronics for
Shinjuku Island Wing 13F                                                                Imaging KK
3-1 Nishi-Shinjuku 6-chome
Shinjuku-ku
Tokyo 160-0023
Japan


Electronics for Imaging, B.V.                        Netherlands
201-207 Boeing Avenue
1119 PD Schiphol-Rijk
The Netherlands


Electronics for Imaging Investments S.a.r.l.         Netherlands
2 Rue Hackin
L-1746 Luxembourg


Electronics for Imaging Singapore Pte Ltd            Singapore
60B Peck Seah Street
Singapore 079323


Electronics for Imaging Espana S.L.                  Spain
Parque Impresarial San Fernando
Edificio Francia
28883 L Madrid
Spain


Electronics for Imaging AB                           Sweden                             Electronics for
Frosundaviks Alle 15 4tr                                                                Imaging Sweden
169 70 Solna
Sweden


Electronics for Imaging Holding GmbH                 Switzerland
ATAG Ernst & Young AG
Attn: Thomas Rast
Bundesstrasse 3
CH - 6304 Zug


Electronics for Imaging (Europe) Limited             UK                                 Electronics for Imaging UK
Stonebridge House
Padbury Oaks
Old Bath Road
Lomgford, Middlesex UB7 0EW
United Kingdom
</TABLE>



<PAGE>


<TABLE>
<CAPTION>

<S>                                                  <C>                                <C>
EFI Foreign Sales Corporation, Inc.                  US Virgin Islands
Crown Bay Marina
Suite 521
St. Thomas, U.S.V.I. 00802

*    All of the listed subsidiaries are 100% wholly-owned subsidiaries of EFI
**   "Doing Business As" names have been listed only where they differ from the
     name of the subsidiary.
</TABLE>



<PAGE>

                                                                   EXHIBIT 23.1

                      CONSENT OF INDEPENDENT ACCOUNTANTS

   We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-56422, 33-80523, 33-85762, 33-93602, 333-11685
and 33-88135) of Electronics for Imaging, Inc. of our report dated January 25,
2002, relating to the financial statements, which appears in this Form 10-K. We
also consent to the incorporation by reference of our report dated January 25,
2002, relating to the financial statement schedule, which appears in this Form
10-K.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
March 27, 2002